Become aware of your beliefs about moneyThere are many beliefs that may influence your thoughts about money:
- I need to fight for my share of a limited pie.
- I need to work hard to have enough money.
- Due to the economy, I am in survival mode, living day-to-day.
- I will never have any wealth.
Some of the beliefs above come from scarcity consciousness, the idea that we have to fight for our share of limited resources. It is a consciousness that encourages the thought, “If I have just have a little bit more, then I will be ok.” But, it does not matter if your monthly income is Rs 25,000 or Rs 150, 000, because if we are coming from a place of sacrifice, then no matter how much we have, we will always need a little bit more. Think about the last time you received a decent raise. Were you grateful for the increase? If so, how long did it last before you wanted the next raise? Probably a few months or a year at most. What causes these thoughts about scarcity? They are just thought patterns that we have learned over the years – “For some people to be rich, some people need to be poor.” Yet, when we believe in scarce resources (“I just need a little bit more”), we grab and hold onto our possessions tighter. This in turn intensifies the feeling of scarcity and makes scarcity seem even more real. Beliefs are the basis of what we allow to enter into our lives. If we believe in scarcity, we will bring scarcity into our lives. We will always want just a little bit more and wonder why we cannot get ahead. If we are nervous and frantic about money, we will bring financial worry into our lives. One will start watching his investments, worrying about the next stock market or any other crash. Instead, if we have a prosperity consciousness, then we will see the gifts of the world all around us. This does not mean that we will get new gifts, but that we will start seeing and appreciating the gifts that are already around us.
So what do we do about our beliefs? We look at your situation from a different perspective. Rather than scarcity, focus on abundance and how much you have. Positive energy begets positive results. For many of us, basic needs of food, shelter, and clothing are met. This is not always the case in our society with many parts having abject poverty. Look at what you have to be grateful for and realize how far you are from true scarcity.
So what does this have to do with a budget? If you start with a feeling of prosperity rather than poverty, it is easier to take concrete actions on your budget. If you believe in scarcity, it will be harder to downsize your budget because you will feel the need to keep “the few things” that you do have. If you believe that you have all that you need, it is easier to pare down your budget because the difference between needs and wants is clearer and you can cut out some of the wants without feeling like you are sacrificing.
For now, when you do your budget, just concentrate on your beliefs and how you feel. It is more important for now just to understand your beliefs about your budget. The first step to changing your beliefs is to recognize them. Because once you recognize your beliefs, you can take action to change them. For example, if you do not believe that you can stick to a budget, you will find ways subconsciously to sabotage your budget. If you recognize your beliefs about not sticking to a budget, you can start asking the right questions to fix it. Did you just ignore it? Or, did you not factor in surprises like things breaking down, and did those setbacks discourage you? Once you find the reason, you can fix it. If you believe that you need a little bit more to be happy, practice gratitude for what you do have now.
Exercise: Take 30 minutes and brainstorm all the beliefs that you have about money. Do not judge these beliefs at this time, just write them down. After the 30 minutes, think about where you learned these: from parents, from friends, from past experiences, etc.
Everybody’s budget will look different. In reviewing your budget, there are three items to pay attention to:
- How comfortable are you with the choices that you are making (e.g., spending more on eating out compared to spending for a vacation)? Do you have any regrets or worries?
- Determine how much risk do you have with large fixed payments that can not be changed easily like mortgage or car payments? Will you be able to meet expenses if something happens, like losing your job or your spouse deciding to stay at home to raise your children?
- Do you have room in your budget for surprises (e.g., increasing petrol prices)?
- Total housing payment (loan payment, taxes and insurance) or rental expense should be less than 28% of your gross income.
- Total debt payments should be less than 40% of gross income.
- Savings should be at least 20 to 25% (and should be more).
Some Experts suggest-
So how tight is your budget? Can you survive if you need to take a cut in pay?
If you do not have the flexibility in your budget, then you should start finding ways to become more flexible before it is too late. This may mean making some changes now and some changes when you are planning your next large purchase items (e.g., next car). Yet, it is better to make changes now before something happens where you are forced to change instantaneously (when it may be too late).
The first step to developing a financial plan is to create a budget.Budget is a reality check of where money is coming from and going to. If you do not attempt to do a budget, then the spending decisions are spur of the moment decisions and not a real conscious choice. You also need to know relatively well where your money is going in order to set up a reasonable budget, but you do not need to track your spending to the penny. If you meet your targeted savings goal outlined in your budget, you probably have a good idea where your money is going and thus do not need to track spending in detail. However, if you can not meet your savings goal, you are probably spending extra money, and you will then need to determine where it is going by tracking your spending in more detail.
A budget is about taking responsibility for your choices and actions. A budget is a series of choices about whether you want to spend more money on:
- vacations or home repairs
- cell phones or movie night
- going out for dinner or retirement savings
Before creating a budget, check with yourself (and your significant other, if appropriate) about,
- How willing you are to do a budget?
- How much control do you believe you have in controlling your budget?
- How empowered do you feel about your finances?
- How do you feel about the amount you are saving (or borrowing) each year?
How to create a budget? Setting up a budget is a relatively easy process. It is the emotions that we have about a budget and the excuses that we make that make the budgeting process unpleasant. The steps are simple:
- Make a list of your sources of income.
- Make a list of your expenses.
- Calculate the difference: are you saving money or borrowing money?
- Compare your net savings amount from the prior step to the amount you saved or borrowed last year. Unless there is a major change in your expenses or income from last year, the difference in this year’s budget and last year’s actual results should be relatively close.
- Review your expenses to determine if you want to choose to change any of them.
In addition, you should review your next month’s budget to make sure that you have the necessary cash on hand for the upcoming month. For example, do you have a large payment coming up (e.g., insurance premium or tax payment) that you may not have accounted for.
The definition of insanity is doing the same thing over and over again and expecting a different result. In making a change in your life, you sometimes need to stretch yourself beyond what you normally do. In other words, you need to overcome the inertia of where you currently are. This will take new energy to get you to past the inertia and reach your goals and meet you commitment.
To help you accomplish this, it is important to realize that prosperity comes from within. The key is to take responsibility for your life and your beliefs so that you can create new energy and overcome your resistance. To prepare yourself to move forward with your journey towards financial prosperity, I ask you to keep five important steps in mind as you continue through this educational series:
1) Determine your willingness and reasons to make a change.
We are creatures of habit – we take the path that is well travelled. As mentioned above, making a change takes effort. With every difficulty and every bump in the road, we may be tempted to revert back to our old patterns.
To make the change easier, determine your willingness to change and your reasons for wanting a change. Understand the payoff of making a change compared to continuing your current path. If the payoff is not worth it, then it may not be worth making the change. If the payoff is worth it, having a clear picture of your goal will motivate you (create energy) to be persistent.
What is your willingness to make a change in your financial life? Why do you want to make a change? Create a clear picture of what you want to accomplish.
2) Know that your current situation can change.
When we have grown up in a particular situation, it becomes familiar to us (the path well travelled). It may seem like life is supposed to be this way because we do not know any other way. If we doubt that our situation can change, we create excuses and an expectation that it will not (resistance). That expectation, in turn, often turns into reality. If you want to make a change, you need to know and believe that a change is possible.
Look at your thoughts as you read this. What disbeliefs or questions do you have about creating an abundant and prosperous life? Do you have some self-doubt? If so, that is fine, just continue reading and experiment with some of the ideas here.
3) Be open to new ideas.
There will be many ideas here that may sound strange at first or that you may disagree with. I am not asking you to change your beliefs, but to temporarily challenge them. It is like trying on a new pair of shoes to see if they fit. If they fit, keep them. If not, discard them. But, if you do not even try them on (resistant), you will never know and no change will ever occur.
4) Be persistent.
They say Edison tried 1,000 different ways to create a light bulb before he finally succeeded. He maintained his energy in creating energy. Where would we be if he had given up on his third try?
If you have not succeeded with your financial plans in the past, don’t give up. Try a different approach. Keep reading about new ideas.
5) Take responsibility for your life.
In our society, we tend to blame others for negative outcomes in our lives. When we blame others, we tend to get stuck in a situation. Blame is a form of resistance. By blaming others, we lose sight of finding a solution to the problem. We may not have caused the situation, but we are the only ones who can control how we deal with it. In other words, we can not change what has already happened to us, but we can control how we view the situation in the present and how we move forward in the future.
Take responsibility for finding a solution rather than finding someone to blame. We will focus on your role in your financial situation, through education, and by asking you to look inward at your beliefs and ideas about money.