- Okay, let's talk about a prudent lifestyle.
The most prudent thing you can do
when it comes to financial flexibility
is to keep your fixed costs low.
Your fixed costs are exactly that.
They are fixed.
If you buy a big house
and get a big house payment,
you're going to have that big house payment
for a very long time.
It is with you relentless every month.
A big car payment is the same thing.
These are lifestyle choices
that constrain your financial flexibility.
House payments, car payments, installment payments,
cable, internet, phone bills:
all of these fixed cost things add up.
The more of your income that is pledged
to meeting these monthly fixed costs,
the less financial flexibility that you have,
less financial flexibility to quit one job
and take another with lower initial salary
but higher potential upside,
less financial flexibility to go back to school,
less financial flexibility to take the job
that you want rather than the job that you need
so that you can make all of your payments.
So, keep your fixed costs low.
Now let's talk about budgeting.
Nobody likes to talk about budgeting,
but if we don't track our spending,
our spending gets away for us.
When it comes to budgeting, the equation is pretty simple.
We have inflows and we have outflows.
If our inflows are higher than our outflows,
we have a surplus.
If our outflows are higher than our inflows,
we have a deficit.
Now, you tell me which is easier,
to increase your income
or to decrease your spending.
For most people, you haven't more control
over your spending than you have over your income.
It's easier to buy a more modest car
with lower car payments
than it is to pick up extra hours of work.
But if you want to have control over your spending,
you need to track your spending.
That brings us to budgeting.
A budget has two essential elements.
First, you got to write things down.
If you're not tracking your expenditures,
how do you know how you're doing?
If you're not writing it down,
how can you keep track?
Now, tell me this.
What happens to your checking account balance
if you don't measure or monitor it regularly?
Well it tends to go down rather than go up.
If we don't keep an eye on something,
it tends to go in a direction we don't want it to go.
So, step one in budgeting is that we've got to write down
how we're spending our money.
Step two, we've got to develop a plan
and we've got to write that plan down.
It turns out that a plan that is not in writing
is just a wish.
You've got to have a plan to reduce your debt.
You've got to have a plan to start saving,
saving for emergencies, saving for retirement,
saving for investments.
A prudent lifestyle and living within a budget
give us financial flexibility.