GMR 120: The 4 Foundational Principles of a Budget

The education system is designed to help you learn a profession so you can get a job. And, one of the main reasons to get a job is to make money. So if money is the end goal, why aren’t we teaching people how to manage it? Well, WE ARE! In this episode of GMR, we introduce you to the four foundational principles of a budget. Mastering these four principles will provide you with the equivalent of a Ph.D. in money management.

Show Notes

The 4 Foundational Principles of a Budget

  1. Assign Every Dollar (Ahead of Time) 

    • Zero Based Budget - Spend on Purpose

    • Yearly income equally assigned to every month of the year.

      • Example $60,000/12=$5,000 per month.

  2. Arrange (Categorize) Every Expense

    • Establishes Order - Easier to manage and track.

    • Better financial decisions; less emotional impact.

    • Accounts for ALL your expenses all year long; no surprises.

    • 7 to 9 Main categories arranged in a way that makes sense to you. (Housing, Transportation, Food, Personal, Medical, Entertainment, Savings, Giving) with Sub-categories in each.

  3. Allocate It Evenly

    • Each month’s budget numbers are the same

    • Easier to remember and stick to; habit-forming

    • Include non-monthly expenses to create stability (money will be there when you need it).

    • Surplus & Deficits rollover 

    • Looks ahead - Future Forecasting

    • Annual view, not monthly.

    • Goal friendly - set it and forget it! (Phone purchase plan)

      • Savings

      • Vacation

      • Car replacement fund

  4. Adjust As Necessary

    • Tracking expenses often to ensure success.

    • Revise when income or priorities change (assign it evenly)

    • Monthly adjustments, do not mean budget adjustments

      • Move money from one category to another due to overspending or a one-time choice.

      • Should diminish over time.

      • If not, revisit priorities and adjust the budget

      • Be flexible, but realize discipline is required.

If you’ve not yet created a budget here are the 6 steps to building one.

How To Build A Budget

  1. Track your income & spending.

  2. Use the first 30 days of tracking to determine your monthly income and spending.

  3. Make adjustments for income and expenses that don’t occur every month.

  4. Evaluate your spending to identify areas you are managing well and areas you can improve.

  5. Set your monthly budget to reflect your priorities.

  6. Review and adjust your budget as you learn more from tracking and your situation and priorities change.

Resources

Budget Forms and Tools
David’s New Book - Jesus on Money
David’s New Website - www.stewardshippastors.com

BudgetingLeo SaboFInancial Plan, Money Management, BudgetingComment