Just got your first job? Wish you knew the best way to deal with the money that’s rolling in? It may seem mysterious – the whole money management thing – but it really isn’t. Doing it right means prioritizing your needs and wants, having a plan, and following through.
A budget is your plan for how you intend to spend the money you bust your butt to earn. No plan means you’re flying by the seat of your pants. The point of a budget is to set money aside for specific purposes: to cover your needs like shelter, food, transportation, debt repayment and savings. But it’s not just about needs; your budget also helps you plan for your wants — like the clothes and entertainment – that you’ll spend money on throughout the year or that stash of cash for the vacation you’ve been dreaming of.
It’s a lot harder to spend willy-nilly when you’re on a budget because you’ve accounted for where the money is going, down to the last red cent. All my budgets come out to zero at the bottom. If I find a category doesn’t work because there’s not enough in it, then I have to cut from another category to make the budget balance. But every cent is accounted for. And you never put on credit anything you can’t afford to pay off in full at the end of the month.
It takes some work to make a realistic budget. And the first one you make may have to be tweaked two, three, six times before it fits you well. Make sure as you set about creating your plan you’re working with the most current information.
I can’t believe the number of people who don’t know how much money they make. I know there are a variety of pay periods: monthly, semi-monthly, bi-weekly and weekly. But all you have to do is look at how much is coming into your accounts to know how much you actually make. If it varies from one month to the next, then you use the lowest income you have as your basic income and it must cover your needs. Extra pay goes towards wants.
Add categories to your budget the way you’d add salt to a recipe: slowly, checking to see how each addition is affecting the whole. Not enough means the flavor will be off. Too much, and, blah! The budget becomes a nightmare. Some people generalize their budgets too much to get an accurate picture of where their money is going. I swear if I see one more budget with “spending money” I’ll spit. It’s all spending money. What are you spending it on? You have to have enough categories in your budget to give you a real sense of where the money goes and where you may be able to cut costs. But you don’t want so many categories that posting feels like sucking on a salt lick.
Remember, too, that not all expenses come in every month. Insurance bills can come annually. Property taxes can come quarterly. Service contracts, dental bills, health-club renewals are all periodic expenses. But if you don’t include them in your budget, you won’t have the money at the ready when the bill comes in.
Make sure you plan to save. Despite how well known the “Pay Yourself First” idea is, people still don’t do it. They wait to see how much they have left to save. And it’s usually ZERO, Zip, zilch! If you’re serious about savings it has to be a line item on your budget, you have to identify a specific amount you’re going to save (both for long-term savings and for emergencies), and you need an auto-deduction to a savings account to make it happen.
Not everyone is prepared to be a grown up and spend money consciously. Some people like the rush of spending on a whim. They hate budgets. But they’re the people most in need of a budget because they have no self-control.
If you’re serious about taking control of your money and your life, you need to make a budget.
If you’ve convinced yourself that budgets don’t work, I’m here to tell you it’s because you’ve never made one the right way.