Many people squirm at the thought of actually budgeting their money. Some say it constricts their money and makes them feel like they have less. For people who actually make and use a budget, they know otherwise; a budget simply tells their money where to go. People who live on a budget know the benefits of living intentionally with their money.
When considering a budget, it is important to know three things: how much money is coming in; how much money is going out; and where is the money going. Unless you are living on an irregular income- say a commission based income - money coming in may be the easier of the three to figure out.
Once that is established, it is time to start figuring out the bills and the random spending that may be a little out of hand. Where does it all go?
Begin by making a list of all the bills and recording the amounts due each month. It may be good to see if any of these bills are higher than what they ought or could be. For example, housing expenses should fall between 25-33% of income. Any more than that and you will find yourself stretched too tight and will struggle to make the rest of your monthly payments.
Here are some general guidelines to follow when constructing a budget:
Housing: 25-33% Charity: 10-15%
Utilities: 5-7% Clothing: 2%
Food: 5-10% Saving: 5-10%
Transportation: 10% Personal: 5%
Medical: 5-7% Recreation: 5%
Keeping track of your spending can be a real challenge! There are a number of online tools you may find to be of help. One online web site is called mint.com. Some banks also offer online tools to help track your spending. Debt management can be a very challenging part of the budgeting process for most people; it will be discussed in another article.
It is important to spend every dime on paper before the month begins. Decide at the beginning of the month what is important to you. If you have a savings goal, or a charity goal, or if you know that a trip is coming up, allocating those funds at the beginning of the month is essential so that these goals are met.
You may find yourself constantly adjusting your budget as the month goes on. It may be that you didn't set aside enough money to certain categories. For example, you may need to over-fund your grocery category in order to keep within your budget. It may take you a few months to get the numbers adjusted to fit your needs, so don't become discouraged. As time goes on, you will get a better feel for how much is needed in each budget category.
As a married couple, it is vital that each spouse come together each month to work out the budget. Both spouses should have a say in where the money goes even though only one spouse is likely to be doing the manual labor part of the budget. Working together here will benefit the marriage as a whole because money is a reflection of our goals and dreams.
For those of you who are single and considering marriage, talking to your dates about finances is an essential way to get to know each other. Keep in mind that the size of the paycheck isn't what matters most, but what happens with that paycheck that can be a deal breaker. If you are dating someone who is heavily in debt and perhaps is a chronic spender, you will need to heavily consider the consequences of attaching yourself to them.
If finances were only about math, then few of us would have financial problems. Search out your triggers, be aware of your habits, and mend them if they need mending. Recognize that our emotions play a big role in our abilities to have and follow a budget.
Keep working at it and know that everything becomes easier with practice. Living on a budget is an essential step towards financial freedom! Good luck as you embark on this exciting journey!