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Saturday, February 21, 2009

The Budget

A budget must be our first step in our plan for becoming multi-millionaires. Do not be swayed by no-money-down deals or get rich quick schemes. Deep down, we all know that we must be frugal and save money. We must save for our nest egg; we are creating a seed, that, when it is mature enough, will be planted, and our money-tree will grow.

The best book to buy for budgeting is How to Make A Fortune Today Starting From Scratch by William Nickerson. The first three chapters focus on saving money. I highly recommend this book to all readers. It might be difficult to find, because it has been out of print for so long, but it is worth the search. In it, he talks, in detail, about how to save money on food, shelter, clothing, insurance, transportation, and entertainment. Read these chapters and follow his suggestions.

We will not make a typical budget. Strict spending limits are impossible to follow, and they become very frustrating. The only definite thing in our budget will be our savings. Saving is a priority above all else - we are not working for free. We make our bosses or clients rich when we work, but we need to make sure that we are making ourselves rich too, until we can afford to focus only on ourselves.

So, have automatically a portion set aside for savings. Some of it will be saving for spending, some will be saving for investment. Say, 50% of your savings goes into a bank account that you never touch, unless it is to buy stock or real estate. 25% goes into your savings account, which will be cash that accumulates for emergencies (you also have your credit cards for emergencies). the last 25% goes into another account - this is your fun money for vacations and expensive goods. Setting up automatic transfers and direct deposits will aid you in saving this way.

Never, ever touch your emergency or investment savings. Don't even look at them. Ever. We will use them later, but, for now, consider that they are non-existent accounts.

Then, you have to pay your bills.

Whatever is left is for your spending on anything you want. Usually, people with spending problems feel guilty in that they spend everything they make. Now, you will continue to have the same habit, drying up everything you have, but you no longer need to feel guilty, because you are also saving.

The hardest part of getting rich will be us saving our seed. We will have to live frugally and save like this for 3-5 years before we can buy our first rental property. This is by far the hardest part of our plan - if we can get past this, we will no doubt succeed in the rest of our plan.

Create a budget, and follow it. Save, save, save.

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