Budgeting

Anyone can teach you how to write a budget, but not everyone can teach you how to write a budget to be rich. Writing a budget that will make you rich is actually not a lot harder than writing a regular budget, however, it does require a change in the way that you think. I want to show you how to write a budget so you can be rich, not how to write a budget so you can be poor.

We all know the basics of writing a budget. We know that you have to allocate spending money to different categories. You might allocate $100 to your gas bill, $100 to phone bill, $200 to new clothes, $400 for groceries etc etc. If you want to budget in order to be rich you don't need to change this basic concept of a budget, but there are a few things that you have to change.

You Have To Change What You Spend Your Money On

The major difference between rich people and poor people is what they spend their money on. Rich people spend their money on things that will make them richer, and poor people spend money on things that will make them poorer.

For example, a poor person may have a budget of $5,000 per month (not a bad salary if you ask me). They will then write in their budget to spend all of their money on liabilities (things that take money out of their pocket) such as cars, clothes, food, new technology and other expenses. At the end of the month they will have no money left over to invest. But a rich person on the other hand, they will budget differently to a poor person because what they buy is different. Rich people will buy assets first (assets are things that put money into your pocket), and then they will spend the money the asset generates them (like rental income from a rental unit) on their liabilities (like cars, clothes etc).

So if you you to budget to become rich (instead of poor) then you need to 'Pay Yourself First' and you need to buy assets first, instead of buying liabilities first. Your assets will then generate you passive income and you can buy your liabilities from that income. Then you end up with an asset that is generating you money AND the nice things that you wanted to buy. By paying yourself first you are making yourself richer and richer, but make sure you purchase assets that generate income (not that take income away from you because that is a liability).

You Have To Try To Increase Your Means

Poor people budget in an attempt to live below their means. They want to spend less than they earn by living frugally and save their money. Rich people live by a different set of rules, instead of trying to live below their means they try to expand their means. If you needed to save $1,000 then a poor person would try to spend $1,000 less, and a rich person would try to make $1,000 more. By constantly striving to increase your means (instead of living below them) you are constantly making yourself richer and richer.

The best way to increase your means is by buying assets that generate passive income (income you don't have to work for). This means you don't have to work more in order to earn more, but you can work less and less and earn more and more the more assets you acquire. In order for this to work you need to buy assets that generate you passive income. Positive cashflow real estate is an example of an asset, stock that pay you dividends are assets, and businesses you don't have to work for but that generate you income are also assets. So if you are budgeting to be rich then you need to budget to increase your means, not to just live below them.

You Have To Budget For A Surplus

Poor people budget for a deficit, where they have more cash going out than they have cash going in. In order to try and fix this they try and live below their means and pay off debt. As we use money emotionally, not logically, they try to reduce debt by consolidating their credit cards into their home loan so they pay less interest. Then they have empty credit cards so they go and spend them, further decreasing their cashflow.

Rich people don't budget for a deficit, they budget for a surplus. This means that more cash is coming in each month than is going out. And I want to let you in on a little secret of the rich...you don't have to spend less than you earn to budget for a deficit or to increase your means. For example, a rich person may buy a rental unit that (after all expenses are paid) puts $100 per month into their pocket. They might pay $100,000 for the property using $80,000 of the banks money to buy it. This is a case of spending more than you earn in order to increase your means and budget for a surplus. In this case the rich person is spending $80,000 more than they earn, but their monthly cashflow does not go down because of the debt it goes up $100 per month. They then have an extra $100 per month to spend or invest.

So as you can see, how to write a budget to be rich is not that much different from how to write a budget to be poor. It is the same method of budgeting, but you just have a few different ways of thinking that means your money is managed better and that your money starts to work for you, rather than you having to work for money.