The Power of Budgets and Negotiation
When you crack open your monthly bank account statement you notice something:
There are dozens of debits (-) and rare few (+) credits.
Most folks get paid twice each month, and yet our checking accounts are linked to dozens of bill pay functions with scheduled payments deducting money every month.
Then we make matters worse walking around armed with plastic cards, constantly depleting our accounts.
Simply put: the war for wealth is won when you flip the dynamic.
You win when your accounts show rare few outflows but are dotted with income. We’ve discussed these different wealth engines: dividend payments, monthly recurring revenue, sale of digital products, royalties, premiums from options, and more.
Starting a business is a great way to create more income.
Great way to create more expenses, too.
In fact, expenses and risk are the only guarantees in business. That’s why I advocate for passive wealth engines first to increase the surface area of your wealth that is yielding for you. Then you can direct that cash flow toward the start-up and operating costs of a business.
Even before activating more wealth engines you must become obsessed with the outflows first.
Reducing their frequency and size is an obvious start, but before that ask yourself → do I need to buy this at all?
Once you cut absolutely everything that isn’t essential next look for efficiencies:
can my business buy this instead of using after-tax wealth?
is there a less expensive or more convenient seller?
discounts for bulk purchase?
discounts for cash?
Whenever my businesses become regular customers of anything I ask myself: could I partner with someone in this business?
You learn a great deal this way. You also reduce your operating footprint and potentially activate entirely new revenue streams too.
Keep It Simple: Budgeting and Negotiation
“Simplicity is the ultimate sophistication.” - Leonardo Da Vinci
If you are spending less than you make, your wealth is rising. Let’s focus on two tools to help you spend less: budgeting and negotiation.
These aren't just for penny-pinchers – they're strategic moves that can free up serious cash flow, whether you're bootstrapping a business or just tired of living paycheck to paycheck.
Budgeting: Your Financial GPS
Think of your budget as a financial GPS.
It shows you where your money is going and helps you navigate towards your goals. Start by tracking your income and expenses – every coffee, every subscription, every bill. This isn't about deprivation, it's about awareness. Once you see the numbers laid bare, you'll be amazed at how those little "harmless" expenses add up.
The foundation of any budget is understanding how much money is coming in and going out. Track all sources of income and meticulously record all expenses, both fixed (rent, utilities) and variable (groceries, entertainment). Determine what you want to achieve with your budget, whether it's saving for a down payment, paying off debt, or simply living within your means. Set specific, measurable, achievable, relevant, and time-bound (the famous SMART) goals.
Allocate your income to different categories based on your goals and priorities. Use budgeting methods like the 50/30/20 rule (50% needs, 30% wants, 20% savings/debt) or create a customized plan that suits your situation.
With this newfound clarity, you can start making informed decisions. Maybe those daily takeout lunches are eating into your savings goals. Or perhaps you're paying for subscriptions you barely use. By identifying these areas, you can strategically trim the fat and redirect that money towards things that matter, like investments or debt payoff.
Sticking to a budget requires discipline and commitment. Automate bill payments, use cash envelopes for discretionary spending, and find ways to hold yourself accountable. Celebrate small wins and stay motivated to achieve your financial goals.
Do you know a great small win that also helps you maximize your budget?
A successful negotiation.
Negotiation: Don't Be Afraid to Ask
Now, let's talk about negotiation tactics.
Most of us shy away from it, thinking it's only for used car salesmen or high-powered executives. But the truth is, negotiation is a skill anyone can learn – and it can save you a bundle.
Start with your recurring bills. Call your cable company, your cell phone provider, your insurance agent. Ask if there are any discounts or promotions you qualify for. If not, politely inquire about their competitor's rates and see if they'll match them.
The worst they can say is no.
The best it can do is remind them they have competition, and you are evaluating!
But don't stop there. Negotiate on everything – from your rent to your car purchase. Do your research beforehand, know your numbers, and don't be afraid to walk away if you're not getting a fair deal.
Remember, every dollar you save is a dollar you can put towards building your wealth.
Keys to Winning A Negotiation
Before entering any negotiation, gather as much information as possible about the subject matter, the other party's interests and positions, and your own desired outcomes. This includes defining your best alternative to a negotiated agreement (BATNA), which is your fallback plan if the negotiation fails.
Keep these four keys in mind.
Active Listening and Effective Communication
Pay close attention to what the other party is saying, both verbally and nonverbally. Ask clarifying questions to ensure understanding and express your own thoughts and interests clearly and respectfully.
Focus on Interests, Not Positions
Instead of getting stuck on specific demands or solutions, try to understand the underlying needs and motivations driving those positions. This can open up opportunities for creative problem-solving and mutually beneficial agreements.
Willingness to Compromise and Collaborate
Successful negotiation often involves give-and-take. Be prepared to make concessions on less critical issues while holding firm on your most important priorities. Look for ways to create value and expand the pie for both parties.
Maintain a Positive and Professional Attitude
Even when faced with challenging situations or difficult counterparts, strive to remain calm, respectful, and solution-oriented. This can help build rapport, diffuse tension, and increase the chances of reaching a successful agreement.
Remember the people on the other side of the table are buyers elsewhere. They negotiate too. Remind them of that, and that your objective is to create a longterm relationship with them that is prosperous for both.
Budgeting and negotiation are two simple yet powerful tools that can transform your financial life.
It's time to take control of your money, instead of letting it control you.
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