海角大神

A few days ago, I downloaded and tried聽, a software package that helps people develop a working budget and get better control over their money. I won鈥檛 get into a long review of it 鈥� my belief with tools like these is that they鈥檒l work great for people who want it to work and won鈥檛 work at all if you鈥檙e not committed to the personal changes 鈥� but I did want to talk about some of the ideas behind it. (If you do want a full review, here鈥檚 a聽.)

As it clearly says in the documentation and is implied throughout the software, You Need a Budget is based on the so-called聽Four Rules of Cash Flow, which are as follows:

Rule 1: Give every dollar a job.
Rule 2: Save for a rainy day.
Rule 3: Roll with the punches.
Rule 4: Learn to live on last month鈥檚 income.

Let鈥檚 walk through each of these a bit.

Rule 1: Give Every Dollar a Job聽simply means that you鈥檙e deciding in advance where each and every dollar you bring in is going to be spent. You don鈥檛 spend a dime without planning for it first.

Rule 2: Save for a Rainy Day聽means that you need to build up an emergency fund because there are going to be times where life whacks you hard and you need to be able to prepare for that.

Rule 3: Roll with the Punches聽means that sometimes you鈥檙e going to make a mistake and that your budget needs to account for that. Often, this means rolling any overages into next month鈥檚 budget by reducing that category.

Rule 4: Live on Last Month鈥檚 Paycheck聽means that you鈥檙e in a position where you don鈥檛 need to touch your paycheck when it arrives 鈥� or even for quite a while 鈥� giving you plenty of time to plan for how to use that money.

Straightforward ideas, right? They make a lot of sense and, if you follow them carefully, they鈥檒l push you in a good financial direction over time.

贬辞飞别惫别谤,听I view these four maxims as just a starting point.聽They give you a good idea of how to start spending less and put yourself in a situation where a disaster won鈥檛 sink you, but they don鈥檛 give you any further encouragement as to how to turn your financial life around.

So, let鈥檚 say you鈥檝e achieved those four maxims. You鈥檙e keeping track of every dollar, you have a decent emergency fund (say, a month鈥檚 worth of living expenses), and you鈥檙e no longer in a situation where you鈥檙e burning through your paycheck the second it arrives. What now?

I鈥檇 suggest a few more steps after the four rules of cash flow.

Step 1: Repay Your Debts Sensibly
I usually suggest that people who are in a position where they have a grip on those four rules move on to聽, but the principle behind this is really simple:聽debt is bad, because every dollar of interest you pay is a dollar you鈥檙e not keeping for yourself.

The simplest first step you can take is to pledge to make a double payment each month on whatever debt you have that has the highest interest rate. Let鈥檚 say that debt is $50 per month, so you鈥檙e paying $100 a month. When that debt is paid off, take the聽entire聽double payment 鈥� $100 here 鈥� and apply that as an extra payment to your current debt with the highest interest rate. So, if your next highest interest debt is $80 per month, you鈥檙e now going to pay $100 extra, making it $180 per month.

Your debts will go away, slowly at first, but then faster and faster and faster until suddenly you鈥檙e free of debt and you have a聽huge聽amount of money available to you each paycheck.

Step 2: Look Down the Road
At some point, you鈥檙e going to retire. If you have kids, at some point they鈥檙e probably going to go to college or a trade school. In both cases, you鈥檙e going to get hit with a gigantic expense.

You can start preparing for this now, and every little bit of preparation helps. If your work offers a 401(k) plan, sign up for it and contribute whatever seems reasonable each month. You don鈥檛 need to break yourself to do it, just look for a comfortable amount. Remember that with 401(k) contributions, if you contribute 4%, your paycheck will go down less than 4% (closer to 3%, actually), so the impact won鈥檛 be as big as you think. Every little bit for retirement helps.

The same thing is true for college savings. It鈥檚 easy to open up a 529 plan (basically, a special savings account for your child鈥檚 college education where you don鈥檛 have to pay any taxes on the money you earn if they use it all for college) and have money taken out of your checking account on a regular basis.

Look down the road and start saving a little bit now. Every dime you save right now has many, many years to grow before your goal arrives. If you put it off, you give your money less time to grow.

Step 3: Re-evaluate Your Goals
If you鈥檝e got your debts under control or, even better, eliminated entirely聽and聽you have a retirement plan underway, it鈥檚 time to ask yourself some deep questions.

What do you want from your life? Are you happy with your career? Are you happy with your current job? Are you happy with where you live?

Debt freedom and a bit of financial security open up a聽lot聽of doors that weren鈥檛 open before. Start thinking about these questions as you begin to reach that stage so that you鈥檒l have some answers when you get there and can establish strong personal goals.

The four rules of cash flow are a聽great聽way to get started, but they鈥檙e just the first big steps in a journey that will take you almost anywhere you want to go. All you need is patience and determination.