Today we are going to talk about the “B” word. That’s right boys and girls we are going to talk about the almighty budget. It is one of the most hated, nerve-racking, and scary words in many people’s financial lives. And yet it is the most important part of building a firm foundation for a financially successful life. A well planned, organized and implemented budget isn’t restrictive, it doesn’t put you in handcuffs and lock you in a no money jail. In fact, it does quite the opposite. Once you learn to build the right budget for your money goals and you learn to live within its guidelines you will find that it is in fact quite freeing!
There are many types of budgets, and ways to do them. If you start one that doesn’t seem to be working for you or is too restrictive you can easily change it. A good budget is a set of guidelines, a plan for your money that you and your spouse have both agreed to. You each should sit down and discuss your financial priorities, your wants and dreams and where you see yourselves in the future. You are each responsible for maintaining the budget, as well as paying the bills. No one person should be doing all the work by themselves.
When creating a budget you should pick one night a week and dedicate it to reconciling your checkbook, paying bills, and making sure that everything is up to date. Our family does this on Friday nights, as that is the day my husband is paid. So, we are able to go over everything, pay bills, and then get ready for the next financial work week.
CREATE AN EFFECTIVE BUDGET QUICKLY AND EASILY
- Gather the following financial information: most recent pay stub, all of your monthly bills including utility, cable, credit cards, student loans, etc.
- On a sheet of paper write your total dependable income, including your and your spouse’s salary, child support that is paid to you and any other form of income you can depend on having every month. Do not include things like overtime, gifts, one time payments, etc., there is a separate place for those items.
- Beneath that total write down the payment amount for every bill. Don’t leave anything out, including gas for the car. Next to them write their due date and the payment amount. It is best to list your bills in order from the closest due date at the start of the month to the last due at the end of the month. Some bills such as utilities (water, electric, etc.) vary from month to month and season to season. That’s okay for now just use the most current bill. If you have a mortgage and your property taxes are not put into escrow you need to do a little math here. First total last year’s taxes, both summer and winter and then divide it by twelve. That number will be what you need to save every month to make sure you have enough for your taxes when they are due.
- Groceries is a hard one (at first) if you have never set yourself a budget for them. For now it is best to over budget on food and household good then budget to little. The average family of four spends between $800.00 and $1000.00 on groceries, so if you’re not sure what to budget that should give you an idea. Remember it can always be fixed later.
- Next you need to brainstorm all of the items that you spend money on but don’t necessarily happen every month. These things include: date night, new shoes for the kids, school clothes and supplies, haircuts, maintenance and registration for the cars, co-payments for doctor and dentist appointments, gifts for birthdays and holidays etc. These things all have their own category as well, but it is most beneficial if you list a realistic frequency for how often they need to be purchased. Take the price of that item (example: hair cut for the husband $20.00) times how often he needs them (every 2 months) which is six times a year. So $20.00 x 6 haircuts = $120.00 a year. If you divide that by 12 you need to budget $10.00 a month for his hair cut. Doing this for all of these additional expenses will show you almost down to the penny what you need to do with your money every month.
- Finally if you are trying to put money aside into a savings account you will want to add this number in as well.
Now for the eye opener. Total all of your monthly expenses and subtract them from your monthly income. THAT is the amount of money you should be living on every month. Remember it will fluctuate with the increase and decrease of utility bills but that number should give you an idea of where you are today. If you have income left over at the end of the month you need to give it a job, or it will disappear before you know it. Personally I would suggest building a small emergency fund of $1,000.00 then start a debt snow ball and throw any extra income on your smallest bill.
If this seems overwhelming at first you can break it down into small pieces and tackle it one day at a time. The important thing however, is not to give up or get side tracked. It takes about three months for a new budget to really kick in where you feel like it is working or where you know it simply isn’t.