January 4, 2009 – 8:37 pm
Everyone hates the “B” word: budget. Some people try to dress it up by calling it a spending plan or something similar. I’m fine with the word budget, mostly because I’ve seen the benefits of living on one for the past few years.
I spent the first six years after college working in various cities and spending a larger part of what I earned. Although I was able to avoid some of the materialism and other pitfalls of my friends, I didn’t budget or spend much time thinking about such things.
Once the care-free days of the internet bubble have passed me by, I quickly realized that tracking my spending each month was an integral part of making better decisions. For me it’s not so much about scrimping and saving every single penny and recycling lint as it is about getting value out of the funds I’m earning.
Several things trouble me now, including:
- Working hard at a job and only being able to survive, but not save. I work too hard and have sacrificed too much to just “get by” and not make any progress towards my long-term goals.
- Spending money without thinking about it, and therefore letting dollars slip through my fingers
- Spending money on items that don’t provide me with any pleasure or value. I can easily give up driving a new car, because cars just aren’t important to me. I would much rather spend $1,000 on books each year for twenty years than I would buy a $20,000 car, and a budget forces me to decide where each dollar goes. The tracking of the budget also shows me what actually happened and shows me how to make better decisions in the future.
Budgets can be simple or complicated, but unless you’re a numbers geek I’d recommend starting off with something simple. Here are the recommended guidelines to setting up an maintaining a budget:
- Get a blank sheet of paper, and write your monthly take-home income (i.e. “net income”) at the top of the sheet.
- Add in categories for your common expenses, and look through your past bills to get an idea of what you spend in each category. Common categories include: rent or mortgage, electricity, gas, gasoline, car payments, car insurance, homeowners insurance, groceries, dining out, entertainment, savings, etc..
- I recommend starting with as few categories as you can, like 6-8. You can and should expand the list to more categories later once you’re able to stick to the budget.
- Set an amount for each category (for 1 month).
- Put the budget somewhere prominent in your home, like on the refrigerator. Refer to it as the month progresses.
- Record what you spend. You can do this on paper in a notebook, you can keep every receipt, or you can use your debit card for all of your purchases and then check your bank’s website at the end of the month. The latter method is the easiest (provided you don’t overdraw your account and you don’t need to use cash for your purchases), and you can print your monthly statement details and use that for the next step.
- Determine the category for each expense, and then add the expenses for each category up.
- Review the results and write down three key things you learned. Did you overspend your electricity category? If so why? Was it that you just didn’t know how much that bill normally is, or did you have a warmer than average month (higher air-conditioning bill)?
- Create a budget for next month and adjust the categories accordingly based on this past months’ results.
Note that the budget needs to add up to zero at the bottom, every month! You can have a category for savings, so I am not implying that you should spend every penny each month.
It will take 3-4 months before you reach a steady point on knowing how much you spend in each category. At that point you should work to reduce your spending in categories that are either pushing you over your total income for the month or are not yielding the benefit or joy they should be.
If You Liked This Post Then Please Check These Out...
Posted in budgeting | 3 Comments »
I’ve heard that a lot of women worry about becoming a baglady. No matter how much they save, and no matter how much they have, many women still worry that they could easily end up as a baglady on the street.
What I did realize today, however, is that I have a similar fear. I have a fear that at some point I won’t be able to provide for my family, or perhaps make them happy. And the odd thing is that this fear isn’t even about providing for their NEEDS. I also want to provide for the extras that make life special. I’m not talking about fancy vacations or expensive cars. Similar to the baglady syndrome, I know this thought is illogical and counterproductive, but at the same time I can’t seem to shake the worry sometimes. I also know (and do) trust in God, but at times the worries come back.
