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Thursday, August 13, 2009

Tips on Budgeting

Money on GreenImage by Darren Hester via Flickr

Tips on Budgeting

Money can disappear so fast if you don't manage it. It's amazing how all the nickel and dime stuff adds up. My old friend use to say, "money is like gas it expands to fill the space".

What he meant was that even though he would make more money it always got spent. There always seemed to be more month than money and he never seemed to have extra. But, at the times in his life where he lost income (because of a job change, etc...), he always seemed to make it work or just barely get by.

Over the years because of a unique position I was in, I had the opportunity to look at a lot of people's finances and one thing I realized is that it doesn't seem to matter how much money you make. I would see the family making $20-30,000/yr doing just fine and then the family making $200-300,000/yr getting behind each month OR the reverse, with the family making $20-30,000/yr getting behind each month and then the family making $200-300,000/yr doing just fine, along with every income level in between.

What's all this mean? It doesn't matter how much you make, it matters how you manage it.

There's an old saying that rings true when it comes to budgets, "If you fail to plan, you plan to fail". A budget is a plan for your money, so let's learn how to plan.

To follow a budget, you need to first establish where you are. So a budget that has both an "actual" and "planned" section is what you re after. What you need to do is list what you're currently spending and then right next to it list what your budget goals are or the budget you want to follow.

Remember these points:

Your income should equal your expenses. If not, the extra will disappear or "expand to fill its space". Your goal is to live under your means, so any extra should go to debt first and then savings.

Always have a "spending cash" item or "misc. money" item, where you can spend the money on anything you want and it's not accountable to any other budget item. If you don't have this item on your list, most people will spend it anyways, but if you do most will stick with the amount allocated. For example, say you only have an extra $5 every month, but you don't budget it and so when you're out you stop and get a meal which cost you $10 and then your spouse spends another $20 on something they wanted and now you're over budget by $25.

Sound familiar? Now, if you knew you only had $5 most people have a tendency to only spend $5 or darn close. Personally, there's been times in my life when the budget only allowed $5 and so my wife got $2.50 and I got the other half. She would go garage selling with her half, so she could get her shopping fix and I would buy off the dollar menu. But there's also been times when the budget allowed for hundreds of dollars for spending cash.

Reality is that most will blow money anyways, so always set aside something no matter how small, the trick is to not be surprised at the end of the month and know what you're going to spend beforehand.

Budgeting for specific time periods is crucial, prepare a new budget each and every pay period, until you can become stable.

Don't forget "If you fail to plan, you plan to fail".

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1 comment:

  1. Thanks for sharing such great post, it will surely help me and other people who want such great information on budgeting.