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Budgeting is a fundamental building block of financial success and is the most crucial step of the Freedom Day Method (™). Your budget helps you understand your Minimum Required Income (MRI) can make all the difference in achieving your financial goals. While I have always hated budgeting. I hated being held to a budget and feeling like I was limiting myself. Until I began to develop the concepts of Freedom Day (™). As I came up with the idea of MRI or Minimum Required Income, it became clear that instead of thinking of a budget as something constricting me, it was my ticket to my personal Freedom Day (™).
By calculating your MRI, you'll gain insight into the least amount of money you need monthly to maintain your current lifestyle, allowing you to create a personalized financial plan. This article will explore various budgeting strategies and guide you through calculating your MRI, setting the foundation for a secure financial future.
1.The Importance of Knowing Your Minimum Required Income
Knowing your MRI is crucial for several reasons:
2. Budgeting Strategies for Calculating Your Minimum Required Income
There are various budgeting strategies that you can employ to calculate your MRI, including the 50/30/20 Rule, Zero-Based Budgeting, and the Envelope System. Let's dive into these strategies and how they can help you determine your MRI.
a) The 50/30/20 Rule
The 50/30/20 Rule is a simple budgeting strategy that suggests allocating your income as follows:
To calculate your MRI using the 50/30/20 Rule, add up your essential expenses (needs) and ensure they don't exceed 50% of your monthly income. This will give you an idea of the minimum amount you need to cover your basic living expenses.
b) Zero-Based Budgeting
Zero-Based Budgeting (ZBB) is a more detailed budgeting method that involves allocating every dollar of your income towards a specific purpose, such as expenses, savings, or debt repayment until you have a zero balance.
To calculate your MRI with ZBB, list all your monthly expenses, categorize them as essential or non-essential, and assign a dollar value to each. Add the essential expenses to determine your MRI, ensuring that every dollar is accounted for.
c) The Envelope System
The Envelope System is a cash-based budgeting method that allocates cash for specific expense categories and places the money in physical envelopes. Once the cash in an envelope runs out, you can only spend on that category for the month.
To determine your MRI using the Envelope System, create envelopes for each essential expense category and allocate a set amount of cash to each. Add up the cash in all basic expense envelopes to calculate your MRI.
3. Steps to Calculate Your Minimum Required Income
Regardless of the budgeting strategy you choose, follow these steps to calculate your MRI:
4. Adjusting Your Budget and Lifestyle Based on Your MRI
Once you've calculated your MRI, take a moment to assess your financial situation. You're on the right track if your current income is sufficient to cover your MRI and allows room for savings and debt repayment. However, if your income falls short or barely covers your MRI, consider adjusting your budget and lifestyle.
5. Using Your MRI to Set Financial Goals and Plan for the Future
Understanding your MRI is essential for setting realistic financial goals and planning for the future. Use your MRI as a benchmark to:
Conclusion:
Identifying your Minimum Required Income is critical to successful budgeting and financial planning. By understanding the minimum amount you need to maintain your current lifestyle, you can create a personalized budget, adjust your spending habits, and set attainable financial goals. Embrace the power of knowing your MRI and take control of your financial future today.
Jeff Kikel is the President of Freedom Day Wealth Management LLC and the Creator of Freedom Day (tm). Having achieved his Freedom Day, Jeff's mission is to help others to understand the principles of Freedom Day (tm) and achieve their own. Jeff is the author of 6 books on Personal Finance, Entrepreneurship, Identity Theft, and Finance. His 7th book,
Freedom Day: Quit the Job You Hate, Live the Life You Love
is due out in the early summer of 2023
Investment advisory services offered through Freedom Day Wealth Management, LLC, a Registered Investment Advisor. Freedom Day Wealth has advisors licensed to sell Life Insurance in TX, OK, CO, CA, ID, IA.. Principal Office: 1320 Arrow Point Dr, Ste 501, Cedar Park, TX 78613. E-mail: info@freedomdaywealth.com.