Why is it important to create a budget?

Whether or not you run a real business, one’s life is similar to a business when it comes to managing income and expenses. You have to plan for job losses, medical emergencies and retirement.

Income is not the most important aspect of budgeting but expenses are. Many people get lucky when it comes to managing their finances due to their main home. When someone buys a property, it generally appreciates, the mortgage gets paid down and one ends up owning a very expensive asset. Tapping into the equity or selling your primary home is the only reason many people survive at retirement. The average person does not have other income generating assets other than their primary home. IRAs, 401ks and rental properties are the most common forms of income producing assets and retirement funds.

I have created an excel spreadsheet with income, expenses and net cash flow. Click on the link at the end of this sentence to open the excel spreadsheet. Budget Spreadsheet.

The spreadsheet is on a 12 month timeline. You can add or remove rows of income and expenses by right clicking on a number on the left side column and clicking “delete” or “insert.” The expense lines includes “Credit Card” which means if another line such as “Cell Phone” is paid with your credit card, then you must decrease the credit card expense number by the ‘Cell Phone” number to avoid double counting. The first yellow box is the total projected income for the year. The second yellow box is the total projected expenses for the year. The third yellow box is the income minus the expenses for the year and as you can see, it shows negative $720. This is the situation many Americans are in, a negative net profit after deducting their expenses. In Accounting, the brackets mean a negative. You can play with the spreadsheet to fit your own circumstances as the spreadsheet is only a fictional example.

The Simple way of Investing

Do you have a company 401k, an IRA, Roth IRA or rental properties to provide passive income if your main source of income goes away? 10-15% of your monthly income should be put away in an IRA/Roth IRA index funds, dividend stocks, savings for rental properties or all three. Having a mix of index funds, dividend paying stocks and rental properties is a great investment scenario. If you have lots of capital saved, you should always speak to a licensed and qualified financial advisor to discuss your options but do not fall into the traps they lure you into. I would never hand over large sums of capital to anyone including financial advisors. It is not difficult to invest in an S&P 500  index fund and rental properties but it requires due diligence and education.

An IRA is easy to create and one of the ways is through Vanguard. You can deposit into a Vanguard IRA with S&P 500 index funds inside of it every month or even make a savings account in an IRA to deduct it for tax purposes. Depositing money every month is key as it results in dollar cost averaging. It is a very simple concept. In a down economy such as in 2010, many investors deposited even more into an S&P 500 index fund and specific stocks than they usually do. That is the entire concept. Invest LESS every month when stocks are at an all time high and invest MORE when the economy is down as stocks are cheaper. This concept applies to rental properties as well. Buy low, sell high.

What is the difference between an IRA and Roth IRA?

The main difference is that an IRA is tax deductible but you get penalized 10% for withdrawing the money before age 59 and a half unless the money is used for qualifying expenses such as purchasing a first time home, medical bills, education and other expenses you should research. An IRA is tax deductible up to $6,000 in 2020. A Roth IRA is NOT tax deductible, however you can withdraw your contributions ANY TIME and earnings AFTER ONLY 5 YEARS. If you expect to be in a higher tax bracket when you retire, a Roth IRA is better but if you expect to be in a lesser tax bracket when you retire, then an IRA is better. Generally, a Roth IRA is recommended for younger people in their 20s and 30s and an IRA is recommended for older people in their 40s and 50s.

What is an S&P 500 index fund?

An S&P 500 index fund tracks the 500 largest public companies in the United States. It is nearly impossible to lose money long term in an index fund through dollar cost averaging. Imagine iff Apple, Google, Walmart, Facebook and Amazon were to go bankrupt. What are the chances of that happening? Even then, it would still leave another 495 of the largest publicly traded companies in the U.S.

How much return can I expect from an index fund?

The historical average of the S&P 500 index fund has been 8-10% measured annually. You can perform better by

1. Dollar cost averaging

2. Investing a lot more when the economy and stock prices are down

3. Investing less when the economy and stock prices are high

4. Purchasing high dividend stocks separately from your index funds

If you invest $500/month into an IRA index fund at a 10% return from age 30-60, you would have a million dollars to retire on + Social Security Retirement income + Pension income + 401k + Properties that you own. Just the 1 million dollars from the IRA and social security income would last you 25 years from age 60 until 85 if you spent $60,000/year and stopped working. At that point, you would also have a house that is completely paid off or have lots of capital from the equity in your home to invest more money. That is a successful retirement.


Instead of spending on liabilities such as car leases, the best use of capital is on income generating assets such as rental properties, index funds or dividend stocks which pay you a return. Start by budgeting, removing liabilities/debts and unnecessary expenses from your life and redirecting those funds towards income generating and appreciating assets. I recommend you read “Rich Dad Poor Dad” by Robert Kiyosaki and watch videos by Dave Ramsey, Graham Stephan and BiggerPockets. There are many resources online, books and in videos. Educating children on these topics is also important to avoid generational financial illiteracy.

If there is anything in the world you need help with or are looking to buy or sell in the future, save my number as “Realtor Lasker” at 480-779-8579 and my email at TaxesAndRealty@gmail.com. Good luck.