Tax Alert: Day 3 - The Ins and Outs of Inflows and Outflows

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Let's discuss the mechanics of budgeting. Money is like breathing:

• In

• Out

With fancy marketing and pushy salesman, many times more money goes out than comes in. The result of that is...debt and stress.

When you're operating on a budget, the pattern changes just slightly:

• In

• >> Assigned <<

• Out

We'll talk about each aspect of a budget, why it's there, and what you need to do to make it work.

Inflows & Outflows

Inflows: Typically, when you think of money coming into your pocket, you think of your employment. Some people are paid twice per month; others are paid every two weeks. Some are paid just once a month. None of that matters though because you always follow the same three steps. You record your income, decide how to spend it, then track your spending against your plan.

Every dollar you receive should be recorded as an inflow.

Outflows: Outflows are really pretty basic. Any time money flows out of your pocket (or you charge something on a credit card - meaning you incur the obligation to pay money out of your pocket), it is an outflow.

How big does an outflow have to be for it to really "count" as an outflow? It need not be very big at all. Did you stick a penny in the gumball machine at the oil & lube station while you were waiting for your car to be serviced? Congratulations, you just created an outflow! (How'd that gumball taste, by the way?)

The one-penny charge is a bit of an exaggeration, but I do it to illustrate a point. Too often we talk ourselves into little purchases that we think won't really add up. It's true that even the little things add up, but there's something even more important:

If you're constantly making exceptions to recording an outflow, you'll never successfully form the habit.

I should probably mention that people place WAY too much weight on the notion of having to record everything you spend. Remember the other day when I said that my wife and I had been clocked at doing the ENTIRE budgeting process in 38 minutes? That included recording every single outflow for the month--manually. Just record it on your phone as you spend it. It takes seconds.

There is a psychological advantage in writing things down. It keeps you closer to your money. This is a good thing. As you write down EVERYTHING you spend, you'll notice your spending decline. Not because you're "cutting back", but because you're more aware of your money doing things you value.

Begin recording every single purchase you make-and stop whining!

For Day Four we'll talk about the First Rule of Cash Flow, that crucial middle step of the budgeting process where you...budget. We'll see you tomorrow!

Action Steps:

Begin recording every single purchase you make. Without exception. It doesn't matter how you record it (pencil, iPhone or Android, spreadsheet, etc.), just make sure you do it consistently beginning today. Right now.

Warm Regards,