Dropping in behind the lines of your budget
Let the Budgeting Begin
Budgeting is a lot like dieting – almost everyone has tried to do it before, but most people fail to stick with their plans in the long term. Why is that, and does this mean that you won’t be able to stick to a budget?
Why Budgets Fail
The truth is that most budgets fail for the same reason that most diets fail – they’re too restrictive. Telling yourself that you won’t spend a dime on coffee ever again (despite a twice-a-day Starbucks habit) is a lot like saying you’ll never eat another piece of cheesecake. Eventually, you begin to feel deprived and lose the resolve to stick with your budget.
To succeed with budgeting, you need to have a balanced approach. A good budget keeps you within your means and allows for some fun money, like observing healthy eating habits keeps you at a healthier weight without dieting. Here are some tips that will help you set up a feasible budget.
Step 1 – Gather information
It’s tough to plan a budget when you aren’t familiar with how much money is going in and out of your wallet. This is why most financial planners recommend recording every expenditure over a week’s time before creating a budget. An easy way to do this would be to get a small notebook and record every purchase, from groceries to utilities, sundries and other small things like soda or gum.
The longer you carry out this information gathering task, the more information you’ll have to use in this step of the budgeting process. If you can, try to go a whole 30 days so that you can see how your family’s spending fluctuates over a month.
Step 2 – Analyze the information
With your notebook in hand, it’s time to analyze where your money goes each month. To begin, assign each expense you wrote down in your notebook to a specific category, such as “Mortgage/Rent,” “Clothing,” or “Medical Expenses.” If you’re having trouble coming up with a list of categories, do an internet search for a budget worksheet – you may even be able to find a free version you can download to your computer to organize your expenses more easily. Once an expense is categorized, total them up and see the percentage of total expenditures each category occupies.
Step 3 – Making Decisions
When you’re finished analyzing your financial information, you’ll notice one of two possible patterns – either you’re spending less than you make or you’re overspending, based on your current income.
Obviously, the more serious of the two scenarios is that you’re spending more than you’re bringing in as income. If this is the case, you need to either cut your spending or increase your earnings – relying on debt to cover your excesses isn’t a strategy that will work in these tough financial times. However, cutting your expenses may not be as difficult as you think. Reduce the number of times you eat out, spend less on new clothes or beauty services, look at cell phone and cable plans and check you aren’t paying for more minutes or channels than you use are three good ways to trim excess from your budget.
Finally, remember to leave yourself a little wiggle room for minor impulse purchases. If possible, put a few dollars from each paycheck into a separate account to be used for expenses that fall outside of your budget. And give yourself a break – you may stumble occasionally, but with continued diligence, you will eventually meet your financial goals.