Chapter 1 — The Budget: Your Foundation and Your Freedom
This chapter shows you how to build a budget that reveals where your money actually goes, separates needs from wants, and frees up dollars for savings and investing. A budget isn’t restriction — it’s awareness. Once you can see your spending clearly, you can redirect money toward the life you want with confidence and intention.
Preface
I am surprised by how many people I meet who do not have a budget. If you are living paycheck to paycheck, you cannot get out of that mode without a budget. If you are trying to quit working, retire, or semi-retire, you need a budget. A budget is proactive and deliberate. "Paying the bills as soon as they come in" is not a budget; it is a reaction.
Why Do You Need a Budget?
A budget allows you to separate needs from wants and investments. Only by doing that can you redirect money to help improve your financial situation.
Here's the hard truth: very few things are actual needs. We will come back to this idea after creating our first budget. In the meantime, think about the money you spend and whether it is being spent on a need.
How to Start
If you do not have a budget, write down every expense for one month. Group these into categories:
- Phone
- Electricity
- Water
- Internet
- Mortgage / Rent
- Homeowners / Renters Insurance
- Car Payment
- Car Insurance
- Food
- Eating Out
- Entertainment
- Credit Card Bills
- Credit Card Interest
- Short-Term Savings
- Long-Term Savings
- Investments
What Is Missing?
Did you have these items?
- Short-Term Savings
- Long-Term Savings
- Investments
Sample Budget
| Category | Frequency | Planned | Month 1 | Month 2 | Month 3 |
|---|---|---|---|---|---|
| Income | Monthly | $5,000 | $5,000 | $5,000 | $5,000 |
| Person 1 | Monthly | $3,000 | $3,000 | $3,000 | $3,000 |
| Person 2 | Monthly | $2,000 | $2,000 | $2,000 | $2,000 |
| Monthly Expenses | |||||
| Phone 1 | Monthly | $60 | $60 | $60 | $60 |
| Phone 2 | Monthly | $60 | $60 | $60 | $60 |
| Internet | Monthly | $80 | $80 | $80 | $80 |
| Electricity | Monthly | $150 | $140 | $160 | $155 |
| Food | Monthly | $600 | $620 | $580 | $610 |
| Eating Out | Monthly | $200 | $250 | $180 | $210 |
| Entertainment | Monthly | $150 | $180 | $140 | $160 |
| Credit Card Bills | Monthly | $300 | $300 | $300 | $300 |
| Quarterly Expenses | |||||
| Car Insurance | Quarterly | $450 | — | — | $450 |
| Annual Expenses | |||||
| Homeowners Insurance | Annual | $1,200 | — | — | — |
| Property Tax | Annual | $2,400 | — | — | — |
| Savings & Investments | |||||
| Short-Term Savings | Monthly | $200 | $200 | $200 | $200 |
| Long-Term Savings | Monthly | $300 | $300 | $300 | $300 |
| Investments | Monthly | $400 | $400 | $400 | $400 |
| Left Over | Monthly | $1,000 | $970 | $1,020 | $975 |
Every time an expense comes in that is not in your budget, add it into the budget above.
Refining the Budget
Now, the hard part: eliminate wants so you can redirect those dollars to things that improve your financial situation:
- Short-Term Savings
- Long-Term Savings
- Investments
What are wants? This will go over like a turd in a punchbowl for most people. But here are wants that can be eliminated:
- Cable TV
- Multiple streaming options1
- Expensive cell phone plans — replace them with cheaper alternatives2
- Cat food3
Identify things in your budget that are wants and can be eliminated or reduced. Move that money into the savings and/or investments lines. A few dollars here, a few dollars there, and you have real money.
Automation
Now that you have the short-term, long-term, and investment lines identified, set up automation to be sure these go to the right place before they are in your checking account. You should never see this as spending money.
You Got a Raise!
Quick, before you do anything else, increase the savings and investment lines! Now go treat yourself to that congratulations dinner :)
Key Takeaways
- A budget is not restriction — it’s awareness. You can’t change what you can’t see.
- Most people were never taught this. You’re not behind; you’re just starting now.
- Very few things are true needs. Identifying wants is where real progress begins.
- Your “swing dollars” — the flexible part of your spending — are the engine of change.
- Short-term savings act as your buffer. Even a few hundred dollars creates stability.
- Every expense belongs somewhere. If it’s not in the budget, add it.
- Small changes matter. Redirecting $100–$300 a month can transform your future.
- A budget is a living document. Update it as life changes.
- You don’t need perfection. You need clarity, consistency, and flexibility.
- The goal isn’t to punish yourself — it’s to free up money that improves your financial situation.
Next: Compounding
Now that we have money set aside for investing, we will move on to the magic of compounding and why it is so important to start now, not later.
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