2 Buck Chuck

“Money is like manure; it's not worth a thing unless it's spread around encouraging young things to grow.” – Thornton Wilder

Many people have a challenging time trying to manage their money. Unfortunately it is a lesson rarely taught in school and a skill that is usually learned through observation. Often times, this is by example through parenting.

I once heard a simple formula to illustrate the point of money management:

- Earn $100 and spend $101 and you are in trouble.
- Earn $100 and spend $99 and you are not in trouble.
- That $2 makes a world of difference.

The cornerstone to any financial plan is learning to live within your means. What does this mean? Jeanne Sahadi from CNN/Money explains it this way:

“Ideally, I'd define living within your means as spending less than you earn, saving some of your income and having no debt. The exception being debt that lets you build net worth, such as buying a home, getting a degree or making a home improvement that builds equity.”

But in order to live within your means you need to know what is coming in (income) and what is going out (expenses). Jeanne has a lot of good ideas. In another article, called The Ideal Budget, she outlines the biggest budget blunders:

1. Not knowing what you spend
2. Failing to prioritize goals
3. Abusing your credit card
4. Eating out too much
5. Paying your savings last

“If a budget is like a diet, then for the budget to stick you have to build in regularly scheduled treats. Set aside a small amount of play money to indulge yourself once a week in a manicure, a golf magazine, two lattes or whatever floats your boat. That helps people have a sense of freedom and control.”

So enjoy those treats, but stick to the diet. Happy Budgeting.