The "B" Word

Do you ever get to the end of the month and wonder where all your money went? Do you have to eat top ramen the last few days of your pay period because your money ran out. Worse yet, are you using credit cards to stretch your paycheck? This is the way a lot of us live whether our paycheck is in the hundreds or the thousands. The good news is there’s an answer to the problem but you may not want to hear it. It’s called a budget.

The word budget sends shivers down the spines and excuses to the lips of those who don’t have one. But the truth is that nearly everyone can benefit from having a plan for their money, whether they have an abundance of the green stuff or not. Some common excuses for NOT having a budget are….

• I don’t want to have to deprive myself
• I have a secure job
• I have everything I want so I don’t need to save for anything
• I’m already debt free, I don’t need to budget
• I always get a tax return/raise/bonus each year that I can count on
• I’m not good at math so It would be to hard to keep a budget
• It’s too tedious
  

Have you caught yourself saying these things? Budgeting is not a complicated task. In fact it gives you more control of your money and helps you to prioritize what is most important to you. It can help you reach long term goals, give more to charity, plan vacations, get out of debt and stretch your dollar in more ways than you imagined. Having your finger on the heartbeat of your money will release a ton of stress and pressure and help you enter into each month proactive, rather than reactive.

Here are some directions to get your own personal budget set up. It will take somewhere between 1-3 hours to build your budget for the first time but only around 30 minutes per pay period to stay on top of your money and make it stretch farther than it ever has before. It’s time well spent.

1. Make a list of all the money going out. Include car and mortgage payments, credit card bills, utilities, hobbies, memberships, groceries, gas, child support, insurance premiums, daycare, daily Starbucks…etc.
2. Make a list of all the money coming in. Include wages, child support, residual income, investment income..etc.
3. Subtract the two to figure out if you have a surplus or a deficit. This will you give an idea where you need to make adjustments. You’ll either have some flexibility or need to take a better look at where you can cut costs.
4. Make needed adjustments. This is where you need to be willing to rethink some things. If you have a deficit this will be the toughest part and a true test of your commitment to handle your money wisely. You might have to make some temporary belt-tightening adjustments to live within your means. Can you cut back on the extra’s on your phone plan? Can your insurance agent suggest ways for you to lower your premium? Can you cut back your designer coffee consumption to once a day or even once a week? Can you bring lunch from home?
5. Make a debt reduction plan. You can approach this two different ways. First you can find the smallest debt that you owe, budget in a larger than normal payment each month, pay it off, and have a whopping success under your belt. Then take what you were paying on that first small debt and apply it to the next debt. This increases the amount of your payment on the next debt but your overall outflow of money each month stays the same. The other option is to tackle the debt with the highest interest rate since that is sucking the most money out of your pocket each month. According to Bankrate.com if minimum payments are made on a $1,000 charge on an average credit card, it will take almost 22 years to pay, and will cost more than $2,300 in interest ($3,300 total). So the higher the interest rate the more you’re paying per year just to borrow money from the credit card company for something that you may have purchased years ago and got rid of already. Either route you take, make sure to just roll over each paid off debt’s monthly payment on to the next debt. It will have a snowball effect and get those debts paid off in record time.
6. Make a place for savings and investments. If you have an overwhelming amount of debt you might want to skip this step. In my opinion it’s more important to get debt out of the way first. But if you have the flexibility, this is a great time to goal set what you’d like to accomplish for your financial future. You might want to build up a savings account, an emergency fund, retirement planning or a college fund for your kids. Our personal goal is to set aside 10% of our monthly income for this category.
7. Revisit your budget each month. Budgets are a fluid thing, they really don’t’ stay the same for very long and that’s ok. Look over your budget at the end of each month to make sure that everything is matching up. Do you need to adjust the grocery category? Is gas costing more than you had expected. Adjust and move forward.
   

You can find a handy worksheet to make this process simpler courtesy of the National Foundation for Credit Counseling.