Wednesday, September 18, 2019
First things first… why do we budget? For many people, budgeting is a scary word. For some of those people, the idea of doing math is the scariest part. But budgeting is less about math and more about record keeping and self-control. The basics of budgeting are easy.
Simply put, a budget is a plan for your money. It’s a document of money coming in and money going out. Keeping track of your money’s movement can help you avoid spending more than you earn. It can also help you plan for long- and short-term goals. Sometimes it can be hard to plan ahead, but doing so now can help you avoid the horrible feeling of NOT being able to make ends meet.
If you have never budgeted before, a good way to start the process is by printing our free budgeting worksheet and instruction guide. You can find the PDF here.
If you’re struggling with budgeting, take a look at some of the common problems below.
1) You left zero room for error.
A lack of flexibility in your budget, especially when you first begin, is sure to lead to problems. Those problems can include emergencies. If your budget doesn’t include contributions to an emergency fund, make that change immediately! Once you solve that problem, add a little wiggle room to some other categories of your budget. Expenses tend to rise and fall, and your budget needs to be able to roll with the punches. IF you spend less than normal one month, put the surplus into savings. It will come in handy the next time you go a little over budget.
2) You haven’t clearly defined your goals.
Without goals, how can you possibly hope to prioritize your spending? Most budgets require some degree of sacrifice. Figure out what it is you want to accomplish with your money and work toward those goals. The rest of your expenses will likely need some trimming. If saving for higher education is a must, how much do you really need to spend on entertainment? If your career aspirations require you to be up-to-speed on current events, maybe you do need cable, internet, and a daily newspaper, but do you also need to dine out for lunch every day of the week? Probably not.
3) You forgot you have a personality.
Are you a saver? Are you a spender? Your budget is unique. That’s why you can’t simply copy someone else’s. It should match your personality and lifestyle, as well as your goals. If you are the sort of person who enjoys shopping and has a casual attitude about money, then be sure to build a cushion into your discretionary spending category. If your budget includes other people, such as a spouse and children, you’ll need to take into account all of their personalities as well.
4) You aren’t being honest with yourself.
Once you commit to budgeting, you absolutely must keep track of every cent you spend… especially in the beginning. Until you have a realistic picture of your spending habits, you won’t know how much of your income should be devoted to each budget category. The place where most people slip up is with their “discretionary” spending. You probably have your rent or mortgage payment memorized down to the last penny. It’s likely our biggest bill each month, and paying it is required. But what about all those little purchases you make each day? A morning coffee, an afternoon snack, a trip to the movies with friends, or an impulse purchase on Amazon. Discretionary spending accounts for all the stuff you don’t need. It also accounts for all the stuff you are LIKELY to buy. Be honest with yourself. Keep good records of your spending the first few months you budget. It will help you identify problem areas and work to correct them. You can print a copy of our spending log to begin the process. The spending log can be found here.
5) You didn’t pay yourself first.
Saving for the future is an essential part of every budget. This can be hard when you’re barely making ends meet. It requires discipline. It also requires you to think beyond your need for immediate gratification. We crave the “high of the buy.” Spending money now can make us feel good in the short term, but in a few years, when we really want something big, the money won’t be there. If you’re still working when you’re in your 80s, you’ll regret not paying yourself first. Set aside room in your budget for saving and investing, no matter how small, and work on growing that category over time.
Be sure to check out the Basics of Budgeting page of the Indiana MoneyWise website to learn more. There you will also find information about credit cards, debt management, retirement planning, investing, and more.
The MoneyWise Matters blog has a wealth of information about managing money and avoiding fraud. You can look through the complete archive here.