The first question that needs to be answered about budgeting is: Why is a budget necessary for my life?
Let me give you a few reasons: A budget will help you tell your money where to go - not the other way around. A budget will bring peace and harmony to your home and your marriage. A budget will keep you on track with your short-term and long-term financial goals. And most notably, a budget will allow for saving, investing, giving, and paying off debt so that you can enjoy a life of financial peace.
In order to establish a budget, you must first learn to overcome the mindset that you "need" stuff. This mindset is sometimes referred to as "stuffitis" - the idea that you must constantly be getting more stuff in order to make you happy. Once you have conquered that hurdle, a budget is actually quite simple.
Begin by tracking your expenses to see where your money is going. For one month, track EVERY PENNY you spend - cash, check, and card. If you have never done this before or if it has been a while since you last did this, chances are you will be surprised where your money is actually going. When my husband and I did this 2 years ago, we realized that we were spending an average of $300/month solely on going out to eat. Yikes! That was equivalent to what we were spending on groceries each month!
After one month, if you have found your income to be greater than your outflow, Congratulations! Know that you are in the minority. I will pick back up with you next week.
However, if after tracking your expenses for a month, you discover that your outflow of money is greater than your income, you need to do one of two things (or better yet - both!):
1. Increase your income
2. Decrease your expenses
Now, I realize that in America credit cards grow on trees, and cash advances are as common as dirt. But let me tell you something else about these things: they're STUPID. Paying interest on your life is not living. It's being stupid. So stop using the dang things.
If credit cards and cash advances are not a part of your equation, you need to take a closer look to see what you can rid yourself of in order to better your financial situation. As shocking as this might be, things such as cable, cell phones, new cars, internet service, restaurants, movies, and beer are not essentials in life. In fact, all of our lives would probably be much more productive without them. At any rate, if your outflow is greater than your income you need to cut costs somewhere and I suggest starting with that list.
Get started tracking your expenses and we will pick up on Budget, Part 2 next week!
Links to the rest of this series: