I am continuing this series on investment and am using the book "Richest man in Babylon" as one of the best books you should give to your kids (and yourself) to read. This book uses short stories set in time of Babylon and what strategies were used by characters at this time to make themselves rich. When I finish the series I will talk about the problems of getting there today this way but nevertheless a great guide. Today we look at Part 2 which is about leaving within your "new" means.

The reason I say new is because in the first chapter we described setting aside 10% and living now within the means of our 90% income. Many people think that as they earn more and more they will get richer. But as people increase their income they usually increase their expenses. So to counter this we need to budget. Below are some basic steps to better live within our means.

Know your expenses and income(90%, dont count on the 10%, also dont include the 10% in your expenses,simply forget about it when you budget). In high school assignment my students are asked to budget for a holiday. They make their table of income(s) vs. expenses(regular bills). Some bills come monthly some weekly but they change to same time period and calculate how much needs to be paid. Leaving them with left over money(in case you are allready in the negative i'll discuss that below).

They also then separate needs and wants. Your rent, you cant negotiate on you need a roof over your head but when it comes to food/clothing/internet plan/ cable tv/eating out/leisure you can negotiate with yourself what to buy and what not (obviously food is a must but what quality depends on the importance you put on it). So if you ended your budget in the negative these things can be negotiated upon. Some might be eliminated/some cut down in order to make do with 90%.

People usually have miscellaneous expenses they didnt plan for. Such as a fine this why on your budget you will have a certain amount lets say $200 a month as an expense to go into emergency fund. Consider this a bill and pay it as soon as your pay get there. Other miscellaneous expenses might be luxury items like my friends are calling me to go out and I know I'll need a $100 for the night/day and I've already spent the leisure budget for the week/month. You might just have to to tell yourself "NO" same like your parents said to you no when they did budgeting when you were younger.

Dont keep up with the Joneses. My kids always ask me: can I get this as my friend has it, and the next day some other friend got something else so now you need to get that too. This will get you in a lot of trouble. There is a budget for everything once its spent (inc toys) thats it.

Final one I have is save money wherever possible. My insurance premium gets increased every year no matter which company you are with. When its about to run out call a few other. 2 years back they told me for my car its ~$500 I called a few and one $360. I know its a pain to do it but it gives you more money to spend on other things you want to do.

If at the end of the month/week you have some money that wasnt used up lets say for leisure or eating out, dont put it in savings add it for next weeks leisure activities as a bonus.

All of these steps are pretty easy as long as youre disciplined and you dont break your own rules once you set them. Dont break them for yourself, your partner or kids.

Source image : www.lulu.com

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