Budgeting

It seems like one of the most hated aspects of personal finance is a budget. Most people hear the word and cringe and begin to wonder what other wonderful things they could do besides making a budget. Things like visit the in-laws, eat worms and clean the toilets come to mind! This dislike of a budget poses the question - Do you have to do a budget? The answer would be no, you don't have to do anything you don't want to, except maybe visit your in-laws. But I would pose a different question to you: How do you know if you are living on less than you make if you do not do a budget or track your expenses in some other fashion?

When in college students plan what classes they will take when, how many classes per semester they need and then continually monitor how they are doing with requirements in order to graduate on time. Without doing this they miss classes that are not scheduled all the time, forget to take their basic classes and don't take enough classes to graduate in a timely manner. Your money is no different if you don't plan for what should happen to it and then monitor it then it could end up way off track and delayed!

In addition to knowing if you are on track or not budgeting helps you decide where to cut expenses if you need to cut in order to be living on less than you make. It is kind of hard to make cuts if you have no clue where you are overspending. This is very similar to when someone is trying to cut back on calories, if they do not know where they are eating or drinking their extra calories then it is very hard to know where to pull back. Only by tracking money or food can you know where you are splurging!

Budgeting and the side effects of the knowledge you gain from this process does not all have to be bad. What if you find out that you are saving way too much or really do have the extra room for investing? I can hear you saying "Yah right", but I know it has happened before. Sometimes the stress of feeling like there is not enough comes from the fact that you may be over saving. You may think this is a good thing, but like with food you need to eat a minimum or you do not have enough food for your body to operate at full capacity. So if you are saving over 20% and constantly feel like you don't have enough money for vacation, then your money is not helping you operate at full capacity. We are supposed to save some, spend some and give some - all in balance. As a side note targeting 10 - 15 percent of your income for savings should be your goal.

So how do you get started with a budget? The first step is to decide that you are ready and willing to do what it takes to compile and follow a budget. I wish I could say this is easy to start with, but for most of us it is not. I can say that it gets easier and easier. I have gotten to the point that I can do it in less than 20 minutes and can even sense when I am not on budget thus prompting me to go review and revise. Without this initial commitment to making the change you will not always have the will or desire to keep going when it is difficult. Write down your commitment on a piece of paper or in a journal, add why you want to do this and then sign it. When you are having a tough day go back, read why you are doing this and look at that signature as a promise that you made to yourself.

The second step is to actually do the budget. Gather your expense data from the past month or two and begin to compile a budget for the upcoming month. If you do not have any expense information begin to collect that information over the next month. Set up an envelope or folder that allows you to collect all the receipts and statements. Use this the next month to set up a budget. Recreate your budget every month, not all months are created the same so your budget should not be the same every month. If you find that something comes up during the month, do not give up on the budget just re-adjust and keep moving. Remember the college student does not stay perfectly on track for four years, but they do review and adjust to get to where they need to go.

Finally, give yourself permission to make mistakes and be patient. This is not easy right away, so give yourself time. You did not learn how to do your job in a day, this is no different, there are too many moving parts for you to get it right at the very start.

Don't hate the budget; it does not have to be worse than cleaning toilets. Approach it as fun and good for you so the process goes better. Just keep in mind that paying attention to your budget details keeps you on track for what you want from life and ultimately helps you get there faster!