The thought of making a budget makes people cringe. The definition on Wikipedia (this isn’t a research paper so I’m allowed to quote it) doesn’t help either…”a quantitative expression of a plan for a defined period of time.” UGH! It can be a long tedious task that can feel isn’t worth the time of day. So why do we put ourselves through the painful process of finding out exactly how much we spend each month? Or even better, why do financial experts say it is important to have a budget?
The importance lies within the process of managing your budget. If you do not know where you are spending your money then how can you control it? Most of us have goals and often times these goals cost money to achieve them. Budgets are in place to make you aware of your spending habits. When you understand the pros and cons of each situation you can make an informed decision about what you are going to purchase.
It takes time and discipline before you feel that a budget works in your life. You have to train yourself repeatedly before it will come to you. When I first met my wife she wanted me to floss everyday (she’s a dental hygienist). At the beginning I wanted to floss, but it wasn’t part of my routine. Every so often she would ask if I flossed and I responded “ummm oops, I forgot.” I eventually left the floss next to my tooth brush so I wouldn’t forget. The point is to keep reviewing your budget and compare where you are until it becomes part of your routine.
So how do you go about setting a budget? Well start with your goals and work backwards. Rank your goals from absolute needs (i.e. retirement, mortgage, groceries, etc.) and work back to wants (clothing, travel, dinning, etc.). Then assign your dollars to pay your needs first and then if you have money left over you can pay your wants. There are different methods to creating and tracking your budget. I’ve heard of the envelope method where you assign each one a category and fund it (i.e. clothing, dinning, etc.). This way you can only spend what you have in each envelop.
There are also a few programs out there that can help you stay on track. Mint.com is a free online program that can help you save for goals and keep track of spending. You can link up your accounts and they categorize what is being spent. You Need A Budget is another great site to check out. One of the better ideas that I’ve seen is their idea of living off of last month’s income. This way if your income is different each month you can live off of what you’ve already earned. They also have free online classes to help with different topics. I have listened in on the classes and felt that they were very informative.
Budgets are important to have in our lives. They guide us on how we should spend our money and keep us out of trouble. It is not always easy to implement but if you keep trying it will come to you as second nature. If you can’t do it on your own, get some free help from the companies that I listed above. Everybody’s brains are programmed differently and each person will take different techniques to fit their lives.