Budgeting 101 (Part 2)

In my previous blog post, I talked about how to find good financial opportunities for yourself to help grow your wealth. In this article, I’m going to delve further into that idea and share my thoughts on how to identify and capitalize those opportunities!

Let me give you an example. I read a lot about Warren Buffet. One of his underlying beliefs is that he values companies that are worthy of investment. He knows which ones are worth buying into and which ones aren’t worth the investment. Buffet understands the value of identifying opportunity because he is constantly seeking out those opportunities.

I decided that I wanted to be like the company that had good finances and was growing. After all, you are essentially a business. You earn revenue, you have expenses, and you can invest your earned income. Companies that fail are in the same financial position as people that financially fail.

 How to Determine Which Companies Will Fail:

• - Companies that take on too much bad debt and have drowned themselves thus limiting their options.
• - Companies that lose control of their cashflow by overspending and shrinking their margins.
• - Companies that do not have a good repeatable process to invest their capital and get a good return and a known rate.
• - Companies with low cash on hand believing that the good times will never end.

 How to Determine Which Companies Will Succeed:

• Companies with manageable debt levels on core business practices that generate a return.
• Companies with a healthy cashflow and low expenses giving them a predictable margin and thus making room to make mistakes or take good, calculated risks.
• Companies that have a repeatable business model that they can invest in and get a known return on their invested capital. This Allows them to compound their capital.
• Companies that keep cash on hand to protect them during downturns or allows them to quickly take advantage of opportunities.

 So, if I wanted to succeed with my financial goals, then I needed to follow those that are making and growing money. It made little sense for me to look at my budget like most people. It’s not that it’s bad but it’s only half the picture and is designed solely to protect you from financial risk.

 The common budgeting philosophy goes like this:

• - Make money and try to increase wage.
• - Spend as little as you can so you can save as much as you can.
• - Put your money in a safe investment structure so it can grow over time and allow you to retire.

Sounds great, right? I hate this for many reasons but the biggest is its focus. Firstly, I hate focusing on trying to earn more from a job. Trying to get a raise or hoping that the company will promote you. Again, it’s not that it is bad it’s just out of your control! Secondly, it’s a focus on not having or doing the things you want or like. I think it’s self-explanatory why I don’t like that – it’s so negative! Thirdly, I hate the idea of “invest, go away and pray.” This is backwards. I wanted to focus on getting multiple streams of income from multiple sources.

Instead of focusing on not spending I wanted to focus on how I could create more revenue to do the things I want and not wait until I’m too old and unable to do the things I want.

Budgeting for most is about not being in control. It emphasizes that I’m not in control of where my money comes from. My employer controls that. I can only control my expenses so much. I must live in a house. I must eat. I must have transportation. I am not in control of my investing, retirement or wealth. To me this just means I am not in control of my life. I wanted to control and increase my earning just like a business would. I wanted to control my expenses and spending on things that I wanted. Most importantly, like a business I wanted to have a repeatable process in which I could invest and earn income so I can compound my results and grow my wealth.