My Grandma used to say to me, “use your head and save your heels.” That adage is applicable in all areas of life, but we’re going to apply it to money. In the area of budgeting, a little forethought will save a ton of trouble for your future selves.
People often think of a budget as the dreaded ‘B’ word, but I believe that a budget really brings true freedom. When you have a budget, in most cases, you find that you actually do have more money than you thought you did. That is, you know where your money is going, and you can locate holes and reallocate it (hopefully into your own pocket). It is exhilarating to know exactly how much you have to spend at the grocery store, and it is liberating to not have to feel guilty over the little splurge at the bookstore. Both of those things can both be taken care of with a plan. That’s what a budget is. It’s only a plan of how you will spend your money.
So, how do you do it? A budget can be done in several easy steps.
- Track Your Expenses: This is simple. Write down every single expense for a pre-determined amount of time. The time frame is up to you, but do it at least for a month. Personally, I find that it works best to do it for three months.
- Track Your Income: Which is the same as track your expenses, only you’re tracking income. Track all of the regular income that comes into your bank account. Only track the windfalls if you can count on them (for this purpose). It’s better to underestimate income than overestimate it, for planning purposes, anyway. You could always save your windfall money, or you could use it to pay off debt.
- Set Goals: At the end of your prescribed time frame, sit down with your spouse and set some goals. Make them attainable and quantifiable. Something like “pay down debt by 10% by December 31, 2011” is better than “pay off credit card.”
- Make a Budget: Include everything. Make sure you cover fixed expenses (rent, mortgage, car note), recurring non-fixed expenses (utilities, food), and vices (alcohol, entertainment). If you smoke a pack of cigarettes a day, include that. Remember that everyone has to eat, and that kids grow out of clothes quickly.
As you go on, you can revise this budget. Many people look at the budget for the first time, and realize that they are spending way too much money in one area. If you are one of those, look for ways to cut back. In this way you can both shift spending from less important areas to more important areas, and, of course, you can always save the excess spending!
I know what you are asking. You’re sitting there saying, I can get this information at several good blogs. We’ve already tried what you say, and Sailor found himself in Bahrain where he didn’t understand the conversion rates and spent all of our bill money! (Not that Sailor and I have ever been there before—not us!) What do I do now? The short answer is to get your spouse a “deployment” checking account.
Budgets are not constraints. They’re plans. Planning in the form of budgeting can actually make your life much efficient. If used properly, they can make you feel like you have more money than you did before you started using a budget. In short, if you use your head right now by creating a budget; you’ll save your heels later on by not having crippling debt repayments.