Is there any company that doesn’t have a budget? There aren’t any, so don’t waste your time thinking about it. All successful firms have one thing in common: they budget their funds. It’s something they do because it works.
Even though generating money and establishing a budget appear to go hand in hand, according to a 2013 Gallup study, just one in every three Americans prepares a thorough written or computerized family budget. Things may be getting better. According to a 2015 Bankrate.com poll, a considerably greater percentage indicated they budgeted. Another 18 percent, on the other hand, did not budget, and several respondents said “yes” to keep the information “all in your mind.”
If you’re one of the non-budgeters (or shady budgeters), we’ll show you how to make and stick to a personal budget so you can better understand your spending habits.
Get Rid of the Jargon:
Language may be at the core of resistance to budgeting. The words “budget” and “diet” have negative connotations. Budgets and diets are seen as limiting reminders of what we cannot have.
Both a budget and a diet are tools. When the tools are utilized correctly, they provide the intended result. Nobody dislikes the word “shovel,” even though using a shovel involves work. A shovel is used to dig a hole; a diet is used to build a healthy body; and a budget is used to live a financially responsible life.
Drop the word “budget” and call it a “spending plan” if it helps you feel better about the process. Instead of considering the plan as limited, consider the items it allows you to purchase. After all, a budget is just a plan for how you want to spend your money.
Begin with your bills:
Many people claim they can’t establish a budget because they don’t know how much money they’ll make in a given week. While it is true that employees receiving an hourly salary or on commission may not get the same dollar amount in each paycheck, the amount you make has far less to do with the fundamentals of budgeting than the amount you spend. Instead of worrying about whether you make enough money each month, consider your monthly expenditures. The question is straightforward: where does your money go?
Everyone has set expenditures, regardless of how much they earn or when they get it, such as the following:
If your recurrent costs do not equal your monthly income (as one would hope), your next step should be to save the receipts from every purchase you make the next month and use them as the foundation for adding new categories or changing the figures in the existing ones:
- Rent or mortgage payments
- Modes of transportation (car payment, gasoline, train or bus pass, etc.)
There are two reasons why these things are included as variables. The first reason is that these costs fluctuate from month to month. Secondly, if you don’t have enough money to meet these costs, they may be lowered or removed without too much trouble. For example, if you run out of money, your entertainment budget suffers, and you stay home during the weekend instead of going out, or you don’t buy those new shoes you’ve been eyeing. Learning to be disciplined with your spending patterns is an important part of gaining financial control.
Examine Your Earnings:
It’s now time to put the theoretical parts of budgeting into practice in your own life. Examine your monthly earnings. How much money do you earn in your worst month? Compare that figure to the amount you’re spending.
In an ideal world, revenue exceeds output. In that case, it’s time to create a personal savings strategy. In other words, don’t spend all of your money; save some for yourself. If you spend more than you make, it’s time to reconsider your spending habits. When your spending exceeds your income, you have two options: raise your income or decrease expenses.
Acquiring a new, higher-paying work, having a second job, or getting a roommate to help with expenses are all options for increasing your income. Eliminating impulsive purchases, which are a big expenditure for most individuals, and cutting out scheduled but needless expenses are two ways to decrease your expenses. Remember that merely foregoing that $3.00 coffee every morning may save you approximately $90 per month. The idea is simple: if it isn’t in your budget, don’t buy it.
Make a spending plan:
Almost everyone wants more money at some time in their lives. Having said that, everyone but the wealthiest among us lives on a fixed wage. In other words, you bring in a specific amount of money each month, and once it’s gone, it’s gone forever.
Accepting reality is the key to having a better, more prosperous life. Remember that your creditors do not work for free, therefore spending money you don’t have is also quite costly. Fortunately, getting your money in order isn’t as tough as you would think.
As a general guideline, you should save enough money to cover at least three months’ worth of costs in the event of an emergency. If you save that money, you won’t have to rely on credit cards if you lose your job or incur unexpected costs. Every other recurring expense in your budget, including the emergency fund, is something you finance monthly, until you reach your goal.
Despite its bad associations, a budget is just a tool that may help you get your finances in order. If the most successful multi-million dollar corporations must budget their expenditures, it seems to reason that the average home should have to do the same. Budgeting your money does not have to be a hassle.
After all, recognizing your income constraints is the most effective approach to get control of your spending, live within your means, and, eventually, achieve your financial objectives.