BUDGETING / CASHFLOW PLAN
- Having a budgeting and cashflow plan is important for those that would like to maximize their savings and the accumulation and maximization of their wealth.
- For most people it does take discipline to save and build wealth and starting with a budget and then monitoring the income and expenses against the budget brings clarity to the monthly actual financial situation. This then allows for spending adjustments to be made to allow the savings to occur at the necessary level to reach the financial independence goal.
- As David Chilton described in the Wealth Barber it may be simpler and more advantageous for many people to turn the budgeting process upside down and start the budget with allocating between 10% to 20% of the gross income for savings (RRSP, TFSA and open accounts) and then live on the balance. In this way the saving component is prioritized similar to how a mortgage payment is usually prioritized. Unfortunately, most people budget the other way which is to deduct the various expenses from the income and then see if there is anything left over to save which many times is very little to nothing. Saving off the top and living on the balance is a great way to approach budgeting.