Most of us grew up hearing phrases like, "Money doesn't grow on trees," "Money is the root of all evil," and "I may have to beg, borrow, or steal." In the world today, we hear a great deal about debt and balancing our personal budget, as well as the problems of balancing our state and national budgets. While a top-of-mind topic for many, budgeting can be a frustrating mystery.
The budgeting process is the catalyst that brings together all planned activities and lifestyle choices of individuals. This process can assist in providing controls to relieve stress from one's life. Personal budgets are usually prepared for short periods and must be revised frequently. They are the only practical way to get a grip on one's spending and ensure that the money is spent in ways that you choose.
Creating a budget requires three steps:
Identify how you spend your money. This can be done by writing in a pad every cent you spend over a 30-day period. Don't omit anything, including the cost of a soft drink or a cup of coffee.
Evaluate your spending and set goals. Your financial objectives should take into account both short-term and long-term savings goals, such as Christmas spending, savings, education, vacations and retirement.
Track your spending. Don't assume everything will fall into place after you have set your priorities. Make sure your spending stays consistently within your established guidelines.
Be sure to watch for cash leakages. If withdrawals from the ATM machine evaporate from your pocket without apparent explanation, it's time to keep better records. Any time cash expenses exceed five percent of your total spending, they need to be checked.
Spending beyond your limits is dangerous. Government figures show that many households with total income under $50,000 are spending more money than they earn. This doesn't make you an automatic candidate for bankruptcy, but it is a sign that you may need to make spending cuts.
Beware of luxuries dressed as necessities. Needs and wants are two different things. Be sure to distinguish between the two. We need a roof over our heads, but we may want that roof/ house to be more luxurious than we can afford.
Tithe yourself. Aim to spend no more than 90 percent of your income. That way, you'll have the other 10 percent to save for big picture items, such as a vacation, higher education for your children, a new car, or an illness. You should also have at least three months salary in readily accessible cash for emergencies.
Don't count on windfalls. When projecting the amount of money that you can live on, don't include dollars that you can't be sure that you'll receive, such as year-end bonuses, tax refunds or investment gains.
Beware of spending creep. As your annual income climbs from raises, promotions and smart investing, don't start spending for luxuries until you are sure that you are staying ahead of inflation.
Always balance your checkbook. Many people have love-hate relationships with their checkbook. Some are obsessive about balancing, while others delay the process because they do not want to deal with numbers, the reality of their bank account or any part of such tedium. Complicating the lives of those who do not balance their bank statements is American's passion for cash and The Automatic Teller Machine, or ATM. Too often people withdraw money from their checking accounts but forget to account for the amount. This often causes checks to bounce, creating another expense that could be avoided.
Some final tips: 1. Figure your weekly expenses and operate from a budgeted amount of cash each week. My daughter calls this her weekly cash and records it as such. 2. Do not carry your checkbook with you - you may spend more than you realize. 3. If you use credit cards, pay the entire bill in 30 days, thereby not spending more than you make. 4. Live by the budget that you have created.
These practices will help you live a more stress-free, and hopefully debt-free, life.