How to Budget Properly
Shalom Lamm, the New York State real estate mogul is a very successful businessman. One of the primary lessons he and many others have learned in life is that to spend less money than you make, and slowly build up wealth, that it is vitally important to learn how to budget.
And an important part, of budgeting, is defining needs versus wants.
Let’s take housing for example. Everyone needs a place to live, and no one, with the possible exception occasionally of a banker, will say no, “The house one is considering is too expensive, or too elaborate.”
But deep in the hearts of people, they really know what they can afford and not afford, and nobody really needs a $500,000 home, or three practically new Range Rovers or Cadillacs in their garage.
Many people kid themselves that buying real estate is an investment but in actuality, 90 percent of the time, a large, expensive home is a huge albatross on one’s neck.
The median price of a home in the United States is around $226,000, but nobody says a person has to purchase an average home and live in Los Angeles or San Francisco when there are perfectly good homes for much cheaper.
There are duplexes as cheap as $142,000, and if a person’s income doesn’t warrant spending anymore, they shouldn’t.
Warren Buffet, one of the richest people on earth owns a modest home that he bought in 1958 for $31,000. He doesn’t live in an expensive house in an expensive city, but instead lives in Omaha, Nebraska.
While we are out it, cars are one of the biggest expenditures, outside houses, that people spend money for. And the minute one drives a car off the lot, they’ve lost thousands, and by the end of the first year, they have lost upwards of 20 percent of the total cost of the car.
People do not need a new home, and they certainly don’t need new cars when a two or three-year-old car can do perfectly well.
So Shalom Lamm thinks that the key to budgeting is being able to understand what are a person’s genuine needs, versus what they want.
This even goes as far back as college. Those who go to college know perfectly well that they can save thousands by studying the first two years in a junior college, and then transfer in their junior year to a public college.
But no, people waste thousands of dollars going to expensive private colleges when the reality is that it doesn’t really matter whether one goes to a state school or Harvard.
Once one knows these things and actually puts them into practice, budgeting is fairly easy.
You simply take the income one receives, subtract all the absolute necessary bills, and also set some of the money left aside for a rainy day fund and emergencies.
If one falls short, then one taps into the emergency fund, and immediately picks up a second or third job.
And if one gets a promotion, they act as if the promotion never occurred, and then gradually, not exponentially, add additional spending slowly, rather than quickly.