Creating Your Budget
It is important to create your budget. Start by understanding your monthly and annual expenditure. Your spending style is an indicator of your budgetary items. What do you spend most of your money on?
In my family we are so obssessed with budgeting sometimes it comes in the way of having fun. One family rule that is yet to be broken is staying out of debt. Maintaining one credit card and ensuring it is up to date on payments is the rule of the game. We show each other receipts including for a movie one attended when the other one was not there.
This may sound crazy but for us it works.
The other day I asked a friend how much she spends on baby milk/formula and she had no idea. Then I asked her to make an estimate of how much she spends on vegetables and she still could not. I know many people struggling with kitchen budgets let alone home budgets. Invsetment budgets? Don't even go there.
But I am always in need of advise on money matters and so I am sharing this coz it also helped me and I am sure it will help you too.
Treat yourself like a business
When it comes to creating your budget, this is a task that no one enjoys as it is mundane and boring right? Creating a budget is the only way to stay on top of your finances. The next part is actually sticking to it.
Sticking to a family budget is as difficult as exercising regularly and eating less of the fatty foods. We all know that exercise and eating correctly are important for maintaining good health just as we know that creating and sticking to a budget is good for our financial health, so why do so few actually do it?
Exercising, eating correctly and budgeting are always found on our new years resolution lists that we promise ourselves we will actually follow this new year, and promises that we always break. There is always an excuse as to why these promises are broken and the tales are interesting and endless.
The four steps to creating a workable budget are,
• Arm your self with all the information you require
• Work out where you are now,
• Decide on the goal you are trying to achieve,
• Determine how you are going to get there.
Arming your self with all the information is a process that is slow and painful, you will be glad that you took the time to do so, as nothing is more effective than sitting down with your shoe box full of receipts, credit card and bank statements and going over them for the last 12 months researching and determining your spending habits. As you go through this exercise break your spending into one of four categories,
- You can do it less often
- You can choose a cheaper option,
- You don't do it at all, or
- You choose not to change your behavior.
You shouldn't make your budget too strict because if you do, the chances of not sticking to it grow considerably.
Tip: as you go through your receipts, bank and credit card statements use different colour highlighters to create a colour coded system to identify where you are spending your money.
This will help you plug those leaks. You could use a coded system as below.
• RED = Entertainment,
• BLUE= Mortgage payments
• YELLOW= Household groceries and expenses,
• BROWN=Dinners out and coffees
Get the idea? This system works as it lets you identify with a glance where the money is leaking and on what specifically. A small note pad in your pocket is also a great idea so that you can jot down the items you bought that day with its relevant cost so that at the end of the week you can collate the notes and see if you have stayed within your budget. A simple system which works.
Americans and Australians are spending more than they earn, and in Australia alone spending on credit cards has blown out to a massive 40billion dollar debt, that is 40 Billion owed on credit cards alone now that is a very scary figure.
Research shows that the reason people give for getting a credit card is firstly for an emergency and secondly to get a good credit score. Wow there must be compounded emergencies to have a 40 Billion dollar credit card debt in Australia alone!
Before you race off and cut up your current credit cards here is a suggestion. Place your credit card in a jug of water and freeze it, so that now when you get tempted to go to the bargain sale or get something that you are convincing your self that you just must have, you will have to wait till the card thaws out and in that time the urge should have dissipated.
Interestingly very few people actually use their credit cards for emergencies.
Resist the urge to pluck a figure out of the air when you are preparing your budget. Go back to the information you have dissected and look at your historical spending and to make it even more simple break it down into two categories,
• Things that you need such as food, shelter, clothes etc and
• Things that you want.
There are certain expenses that you may not be able to do a lot about while there are some that you can. For example review your cable TV subscription. Do you use all of the features and applications that you are currently paying for? If not then change to a lower subscription. Say your current subscription is $100.00, if you change to a $40.00 one this saving of $60.00 can be used to pay down your credit card debt.
Review all your current subscriptions and spending habits and by adjusting as necessary you will find that the savings will pile up without really affecting your current life style. Now that is not so hard is it?
Finally when you are working your budget do it in a time frame that you are comfortable with and can easily manage. Create a weekly and monthly budget allowing for the spikes for items that are billed annually. A method that I have used is taking the yearly items and dividing it by twelve which gives me the monthly amount that I need to budget for. This amount stays in the bank till it is required, earning interest which creates extra income that you currently do not have. That is the power of a well constructed budget.
Author Brian Norton, teaches budgeting and financial control to individuals and small business owners so that they can succeed financially,Brian runs and operates several very successful businesses and is a sort after speaker and trainer,
sign up for budgeting tips at benjimite.com
Article Source: Brian D Norton
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