Budgeting: The Blue Print to Financial Success

I worked in the financial services from June 2005 until July 2016. 11 years. 11 years of helping my clients achieve their financial goals. During my years working in the financial industry, I worked in affluent markets, mostly with well-to-do customers, but I had clients who were struggling financially as well. The one thing all my successful clients did: They had a monthly budget which they adhered to with strict discipline.

Your level of financial success is NOT about how much you earn, it's about how much you can keep and then turn into wealth. In 1988, two years after my dad graduated from Pharmacy School and earned his Ph.D., we were living in Saudi Arabia and my dad was working as an Associate Scientist earning only $25,000/year. My mom started working at the same hospital in 1992 only making $10,000/year. Through hard work, sacrificing, generating additional sources of income, and budgeting, my mom's increase went from making $10,000/year to $47,000/year in 2002, before launching her business. My dad went from making $25,000/year in 1988 to making $200,000/year by the time he retired in 2016. Mom and Dad’s income in Saudi Arabia was not taxed by the Saudi government. By 2016, prior to their divorce, they had amassed a net worth of $1.5 million, not including their primary residence.

When I asked my parents how they managed to achieve their net worth despite not earning much money in the early part of their careers, they attributed their success to having multiple sources of income, constantly building on their educational credentials, but most importantly having a budget that forced them to live below their means, and sticking to that budget no matter what. They made it completely clear that had they not stuck to their household budget of 1,000 Saudi Riyals ($267) per month (they saved the rest of their income) in the first 10 years of living in Saudi Arabia, they would not have achieved their financial goal. Creating and sticking to that budget was the key factor to helping them achieve their objectives. How did our family manage to live on $267/month? My parents bought secondhand clothes at the local markets on a budget of $50 for the entire family. Our family’s food budget was $50, car maintenance was $100/month, and the household supplies and entertainment budget were $65/month. In 1994, when my dad was earning $4,000/month (tax free) and my mom was earning $1,300/month (tax free) their income for the year was $63,600. With total expenses of $5,680 (my school tuition) + $4,000 (household expenses) = $10,680, my parents saved $52,920 ($63,600- $10,680) that year alone, not including the interest they earned on that money.

The house we lived in was provided by the hospital my dad worked for, at no cost, with all the electric and utility bills paid by the hospital every month. The only major expense that my parents had was my tuition for school, the American International School, which cost 21,300 Riyals ($5,680) per year. The rest of the money they earned going to high yield savings accounts in Saudi Arabia, Zimbabwe, and the United Kingdom.

Why is a budget so key? It tells you how much money is coming in and what your expenses are, thereby giving you the ability to determine your discretionary income. A budget also gives you an opportunity to determine a fixed amount of money that goes in an emergency fund every month without interfering with your ability to meet your monthly obligations.

If you don't learn to budget, I guarantee you will never become financial stable, let alone wealthy. How do I define financial stability? A financially stable individual is a person who, if they were to lose their primary source of income, would be able to maintain the same standard of living for a period of at least five years, living just from the liquid savings that they've accumulated.

What are your thoughts? Do you create a budget every month?

Till next time,

Kubvo/Patrick

The Charming Wanderer