At many times throughout this series and especially in Part 2, I told you not to worry just yet about your individual credit card purchases and to treat them all as one “big category”. The reason I did this is because I didn’t want our lesson to get hung up on analyzing credit card purchases to death.

You have a lot of other bills besides a credit card, and most of them are fixed each month. As we’ve already shown, knowing what you’re going to spend each month versus what you’re going to take in is extremely helpful in creating a budget.

But in no way does this mean that we should ignore your credit card purchases. In fact, hitting the credit card category is the first place I usually look to cut my spending and re-direct the money towards one of my new financial goals.

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Time to test the gold in fire.

Earlier I told you that a well designed budget would be the key to money management and staying within your means. This is still true. If you’ve created something that is tailored for you, meets your goals, and is comfortable enough for you to live with, then you should do well.

All of this would be great if “you” were the only person this budget was for. The problem is that it’s not just “you”. A budget is usually for you, your spouse, and your family. Although that doesn’t sound like a lot, there’s a lot going on inside that group. Just like how a company sets a budget, each department will likely have competing goals and agendas. Similarly, sometimes each person in the family feels differently about how the money should be spent and what the budget should accomplish.

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So after Step 5, does your budget meet our goals? Did you make adjustments and sacrifices? Do you have a positive balance for each month throughout the year? Is less money going out than is coming in?

If so, then you are ready to move on to adding in your investment goals. Notice we didn’t do this in any of the previous steps. This is because you have get your business in order before you can start getting advanced with your budget – You have to walk before you can run. After we’re meeting our basic set of goals, let’s start digging a little deeper and adding in our investment goals.

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Every great budget follows one simple formula:

• [ Money In > Money Out ] = Good

Or in other words …

• [ Money In – Money Out > $0 ] = Good

Basically you’ve got to have more money “coming in” than “going out”. Any other way is just a recipe for disaster!

Don’t under-estimate how incredibly powerful this equation is. Everyday, people make the mistake of buying things on credit that they can’t afford or taking on payments when their income simply can’t sustain it. It’s simple physics that you can never have more going out than coming in.

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As I’ve already expressed, your entire year is not just one month multiplied times 12. Your year is full of different events and one-time events that can greatly influence your money. The next step is to capture all those things in your 12-month snapshot. Here are a few to start with:

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Now here is where your budget will become far more advanced than everyone else’s:

• Copy your one-month column 12 times so that you cover all 12 months!

Yes, our budget is going to go for the whole year.

What’s Wrong With One-Month Budgets?

Lots:

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Take that list of your major expenses you created in Step 1 and list them for one month. Create one column and put your rows of expenses near the bottom half of the page.

Income

Now let’s go up to the top of the column. This is where we will list your income for the month. For most of us, that will simply be your paychecks and your spouse’s paychecks.

Congratulations if you have other significant forms of income. Some examples might be:

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THIS IS NOT going to be one of those “how-to” examples where you’re told to record ever purchase you’ve ever made. Doing that accomplishes NOTHING but wasting a lot of time. Besides, Mint.com can already do this for you automatically. I’ll have more on that later in this series.

Instead, look back through your checkbook from the past few months. What were your MAJOR expenses? Make a list of them. I highly recommend using Microsoft Excel if possible. And yes, there will be a link to the template we create throughout this series at the end.

Here are a few examples:

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