How often do you buy lottery tickets, hoping that you will defy the 1-in-a-gazillion odds and win an incredible sum of money that will solve all your financial problems?  Be honest –  it will never happen.

Or do you sometimes wish that you had a long-lost rich uncle that will send you a big check? He doesn’t exist, does he?

You can only count on yourself.  It’s like weight loss. If you want to lose weight, you need to be the one exercising. You need to be eating healthier foods and smaller portions.  You need to commit to sticking with your budget.  Only by doing so can you get to a much healthier financial lifestyle.

Too often, people say, “I’ll start on a budget next year.”  And they say the same thing the following year.  Next year turns into two years, and then into three, and then into never.  Delay getting started living on a budget and your financial health will only get poorer, and the challenge to get better becomes much more difficult.

The Chinese philosopher Laozi said over 2,500 years ago, “A journey of a thousand miles begins with a single step.” The single most important step—the first step—in your journey to financial fitness is to commit to taking the second step, and then the third, and then the fourth, and so on.  Before you know it, you’ll be quite a long way down the road and closer to your better financial health!

Be relentless in sticking to your budget.  No doubt it will be difficult. But how tough is it now to be under the weight of debt? How hard will life be during retirement if you failed to adequately save while working?

Some people have made decisions they regret and are in debt as a result, while others are in debt they had no control over.  You have the ability to take control of your debt and end the hold it has on your life.  You will be proud of the financial future you can achieve.

The second step towards financial health begins with a word that can make the staunchest of us cringe: Budget. Very few financially healthy people do not have to follow a budget; for you, it’s mandatory.

During retirement, a budget will also be mandatory, so get used to it—even if you’re decades away from retirement.  There are stories aplenty about retirees having to choose between taking a full dosage of a prescription drug or buying food. Either budget now when you have greater flexibility and can positively impact the amount of income you have during retirement (which we’ll talk about later) –  or live on a restricted budget during retirement. You choose. It’s your life.

Budgeting is all about differentiating the essential expenses of your household from “discretionary” spending. (Discretionary expenditures are ones you don’t really have to make.)  Examples of essential expenses are rent, mortgage, utilities, food, and insurance.  Examples of discretionary spending are the daily non-fat mocha with a shot of vanilla, eating out several times at your favorite restaurant, buying the latest fashion, the 60” flat-screen TV, all the purchases you couldn’t account for when analyzing your checking account statements, and other things that define a lifestyle you can’t afford.

Certainly, your budget needs to pay for the essential expenses of life. Just as important, there needs to be room in your budget to “pay yourself first”. From each paycheck, set aside a specific dollar amount that will allow you to:

  1. Build an emergency fund;
  2. Make extra payments on your debts that are greater than the monthly account minimum; and
  3. Start making minimum contributions to your 401(k).

How can you set aside money in your budget to do all we listed in the paragraph above?  Reduce your discretionary spending! Yes, you will need to make some sacrifices. It’s not much different than being on a diet and not having a second helping of dessert.  It won’t be easy. We’ll explore in greater detail these three additional budget goals so that you can understand their importance—and thus have the motivation to fine-tune your budget (and later stick with it.)

Our strategy to get you to financial fitness involves a few steps. We say it’s as simple as ABC.

A is for Analyze, as in “analyze how you are spending your money”.  Just as A is the first letter in the alphabet, the first step to becoming financially fit is an analysis of your expenditures.

Look at your bank statements for the past 6 to 12 months.  Dig out your credit card bills.  Try to account for how you spent all of your take-home pay.

You should be able to easily account for rent or mortgage payments, insurance premiums, gas, electricity, cell phone bills, car payments and other debt payments.  But how did all those cash withdrawals get spent? Often there is insufficient detail on your credit and debit card statements to identify the businesses where you spent money, leaving you scratching your head over this or that charge.

Get as detailed as you possibly can with itemizing where all the money was spent.  (It will be important when we talk about the letter B.)

If you are like most consumers, there will be a big percentage of your expenditures you won’t be able to nail down. You have plenty of company wondering where all the money went.