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Types of Budgeting (Rich Man Version, Poor Man Version, Wise Man Version)

Let's see if you can guess who's the rich man, the poor man, and the wise man in the following scenarios:

SCENARIO # 1 - Rob gathers all his bills. He calculates the total monthly income that he receives from his job, working as an office manager. He puts this amount at the top of the sheet of paper so that he doesn't forget his spending limit. Then he begins to add up all his bills. When he's done, he realizes that his bills exceed his income. His income is not enough to cover all of his expenses. Rob then begins to fix the problem by removing some items off his list of expenses. He removes the gift money he was going to use for his mother's 80th birthday. He cuts his McDonald's lunch expense in half and he decides he'll pay his light bill next month. Rob may not have gotten to save any money from his check this month, but at least his expenses are just below his income and he won't have to rob Peter to pay Paul.

SCENARIO # 2 - Peter has just landed an interview for a new job, working as a real estate agent. He's pretty confident and wants to get a head start on keeping his finances in order by creating a budget now. Peter adds up all his expected expenses and knows just how much he'll need to earn in order to cover all of his monthly bills. He puts this number at the top of the page and plans to negotiate an appropriate salary. Peter feels great about the budget he created. He included his light bill, mortgage, savings, spending money, and even an emergency fund. He can even afford to lend Rob money!

SCENARIO # 3 - Paul has excellent budgeting skills and has been extremely successful at running his own business. He knows off the top of his head how much his expenses are. When Paul was working for someone else, he made a promise to himself that his job wouldn't be his only source of income and it wouldn't dictate what he could have in life. He decided to create multiple streams of income by monetizing ALL of his talents. He did business consulting. He provided accounting services. He did income tax prep. He even sold his own artwork. This allowed him to fund the successful business he now owns. Paul's budget is very simple and has two columns: one for expenses and one for his several income streams (which is way longer than his list of expenses). He never has to cut essentials from his list. And, he never has to worry about only having just enough to cover some items on his list or depend on his boss to pay him in order to live comfortably!

So did you figure it out? In Scenario # 1, Rob first looks at his income and mentally establishes his financial limits. Observing boundaries is a useful practice, but not to the point that you create a cage for yourself. Boundaries should provide guidelines, not traps. Rob has decided, without knowing it, that he can only have what his boss decides to pay him. That makes him the Poor Man.

In Scenario # 2, Paul lists his expenses first, which gives him better salary expectations, which will then allow him to lead a much more comfortable life than Rob. His budgeting technique will ensure that he doesn't get stuck in a revolving door of debt. Because he's budgeting early, he knows what salary to request in order to meet his needs and wants. This makes Peter the Rich Man. Unfortunately, because this is Peter's only source of income, if he gets laid off, he'll be worse off than Rob. That's no fun. And now you know the difference between being rich and being wealthy.

In Scenario # 3, Paul has generated his own wealth. He uses all of his talents to create the wealthy lifestyle he enjoys. If He decided to stop providing accounting services today, no one would notice any lifestyle changes. He can continue his lifestyle because he has many other income streams lined up. And that makes Paul the Wise Man. Paul creates a budget just like Rob and Peter, but he doesn't allow it to put him in a box and he doesn't allow it to make him so comfortable that he doesn't use his own talents to create additional streams of income.

Congratulations if you figured it out! The next time you create your own budget, think of Paul. What talents do you have that can create profits for you? Get to work!

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Types of Budgeting
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