Starting to Budget

April 6, 2012
If you are like many Americans, you probably live from paycheck to paycheck and blindly hope that everything will work out. But the truth is, everyone needs to learn how to budget their money and save for unexpected financial needs (which invariably occur at the worst possible time). Financial stress brings with it a multitude of problems. Worrying about money can take over nearly every aspect of your life- your ability to sleep, being able to function properly at your job, enjoying a healthy relationship with your spouse or partner. If you have never made a budget or tried to live within one, it may seem like an overwhelming task. But it’s important to take back control of your financial situation and the way to begin this process is by planning a budget.

Find your starting point
Even if you have good spending habits, creating a budget is an important step in managing your income. With all the uncertainty people are faced with today- rising prices, mortgage shortfalls, job insecurity- it makes sense to plan for the unexpected. This means getting an accurate picture of your personal finances. Look at your bank statements and monthly credit card bills and find out where your money is going. You need to include all of your expenditures like housing (mortgage or rent), automobile (car payments, insurance, fuel, and maintenance), utilities (electric, water, natural gas, trash collection) and any other insurance (life, renter’s, homeowners). Calculate what you spend on food/grocery items and add this to your monthly living costs. Also include a reasonable amount for entertainment expenses. This can include the cost of dining out, movie and/or concert tickets and books/music purchases. If you routinely purchase clothing or other items, include these amounts with your monthly bills also. The most important thing to remember when starting a budget is to write down a true and accurate amount of what you spend- not the amount you wish it was. You have to be honest with yourself and the situation if you want to create a successful budget.

Get everyone on board
If you are married or have a family, it’s crucial that everyone is aware of the financial situation so that you can successfully work together on your spending plan. It’s virtually impossible to create and live on a budget if everyone isn’t involved and working towards the same goal. If children are involved, the explanations and discussions should be age appropriate. Children need to realize that you can’t have every single thing you want, exactly when you want it. (Many adults struggle with this concept, also.) But even younger children can benefit from learning sound spending habits- and working together as a family is always a plus.

Don’t get discouraged
If you find that your income is less than the amount you are spending each month, don’t give up. The last few years have dealt some serious financial blows to everyone. If you are using credit cards as a means of stretching your income, you are not alone. But to climb out of the financial hole and begin your budget, you will need to put away the credit cards and learn to live on your actual income. This generally means learning to think about money and spending in a new light. It means planning meals ahead of time and not going out every night for dinner. It can be something as simple as clipping coupons and finding the best deals. When you realize what you are charged for interest payments and bank/overdraft fees, for example, it can feel quite empowering to make the decision to spend your hard-earned money on things you really need- not just hand it over to some financial institution.

Set aside a regular weekly time
Choose a time every week when you can sit down and go over your budget. Remember that life is constantly changing. If you had to spend a bit more one week, try to find ways to make up the shortfall during the coming week. Always know when your bills are due and keep a running balance of your available cash. It’s important to pay your bills on time and in a consistent manner. Late fees can add up quickly and your credit can be seriously affected. It can’t be emphasized enough- know where your money is going. You can’t be in the dark and in control at the same time.

Don’t neglect the fun things
Everyone needs to relax and have fun so remember to include things you enjoy doing in your regular routine. With some creative planning, you can still have a good time without spending a lot of money. Check out your local websites for free events such as concerts, art festivals, or museum offerings. Consider walks or other outdoor activities which are not only fun but healthy. Movie tickets are generally less expensive during the day and many cultural venues offer reduced rates on entrance fees, etc. on certain days. Remember that it’s possible to enjoy quality activities and pursuits without breaking the budget.

Take advantage of smart tools
There are many resources available to help you put your financial picture into focus. Microsoft Money, Quicken and are just a few of the budgeting tools which can help you get started with a budget and keep you on track.