Budgeting

Establishing and staying on a budget is one of the best ways to establish or restore credit. Budgeting is a road map to strong financial health and strong financial health is an absolute requirement of restoring and maintaining strong credit. The two go hand in glove.

While the mechanics of establishing a budget are quite straightforward, the plain fact is that it takes a powerful emotional and mental commitment to stay within the limits of one's established budget. One of the most common mistakes made by people that attempt to restore financial security by establishing a budget is that they discard the whole thing if they blow one month by overspending. This is often enough to derail the whole project. Budgets, like most things in life, are not hard and fast rules, rather they are guidelines for spending based on data collected about income and spending habits. They are not fixed, carved in stone, and unyielding. They are, rather, flexible and fluid having the ability to adapt to new conditions and to poor implementation. Budgets must be revisited often in order to make adjustments as life changes. There are several things one can do to make budgeting successful.

• Make Budgeting a Team Effort. If budgets are created by only one member of a team then the whole budget is going to fail. It takes a mutual understanding and a family commitment to make budgets work.
• Plan Your Shopping in order to Avoid Spontaneous Purchases. Make a list before shopping. Such a list is protection against impulse shopping and impulse shopping is often a budget killer. If you simply do not feel right unless you are making an impulse buy then limit yourself to one impulse item per shopping trip and keep that purchase under $5.00.
• Revisit your Financial Goals on a Regular Basis. By revisiting your goals you are more likely to focus on those goals and attain them. By revisiting your goals you are more likely to stick to your plans rather than straying.
• Establish a Reasonable Cash Requirement for the Week and Stick to It. Pay yourself an allowance and do not go back to the well for more money even if you can rationalize the reason for running out of cash. The key to making this work is to establish REASONABLE requirements. If you have cash left at the end of the week you should save it for the times in the future when you will go over your preset limit.
• Budget for Family Fun.The surest way to fall off the budget wagon is to not allow for fun. While you are working to reestablish financial security with a budget this line will not be a big one. As you take control of your finances, however, this line will increase and may include such things as a weekly movie or a two-week vacation. The point is that you are avoiding impulse purchases by including fun in the budget.
• Account for Cash or Cash Equivalent Expenditures. The only monies that do not require accounting are those you withdraw as your weekly allowance. You have already accounted for that money as a fixed weekly expense. The cash or cash equivalent expenses are those you make outside of your weekly expenses. A meticulous record must be kept of these expenses if you expect your budget to work.
• Finally, Do Not Use Credit to Balance Your Budget. Using credit on a regular basis is a sign that your budget needs serious reconsideration. If you have to use credit to cover those pesky end of month expenses you can be certain that your expenses are out of line and must be rethought. Borrowing to meet expenses only serves to procrastinate the obligation to pay the piper anyway.

Establishing and living on a budget, while at first, may feel a bit restrictive. In fact, it has many important rewards. Foremost among them for people seeking to restore credit is the fact that you have taken the first and most important step to controlling your finances. Living within your means allows you to sleep better, to save money, to have far less stress in your primary relationship and to simplify an otherwise complicated life.