I am not normal. I think differently than most people. Myers Briggs says that 98% of people think differently than me and I am okay with that. I am a hyper logical systematic thinker which can be helpful with regard to thinking.about money. I am not above emotions when it comes to my decision about money but I often see the rational, logical course and stick to it because honestly, it is most logical.
We need to think about our personal finances like a CFO thinks about a corporation. Your house is a small business with profits (your income) and losses (your expenses). If your expenses exceed your income you will soon find yourself in big trouble. For a family that means debt and enslavement to lenders. You agree to give up monthly cash flow, pay them more than you used, and if you are late they tell everyone else about it through the credit agencies so they will all look down at you as well.
You must make choices that will allow your family to succeed and that starts with ensuring your balance sheet is right. Your profits (income) must exceed your losses (expenses) each and every month. For a long time I tried to play games about how close we could get to the income line and inevitably we would go over. Something would come up or breakdown. I was thinking about it all wrong–and this is where you can learn from my mistakes.
Give yourself breathing room every month. Make sure you give every dollar a job but some of those jobs might be to go to work next month. Or for others saving to buy a car, pay for insurance, or simply to sit in an emergency fund to give you piece of mind. I want to be practical so I want to answer the question, “How much breathing room?” I would shoot for as much as you can spare. Will it really hurt you if you save an extra 5%? If you shoot for and budget for 20 or 25% and only hit 15% you just saved as much as most Americans do in 3 months. A lot of things can go wrong every month and you can still cover them if you have a 20% savings rate.
If you are running your financial life with margin built in over time you will become much more stable and have more peace. Your saving will be growing every month maybe even significantly in some months. If you have built margin and savings, then when opportunities to invest in something you love, but is cash only, or something breaks, you don’t freak out about how you will pay for it. You simply write a check. That’s it!