Budgeting

As mentioned in my previous blog I had to learn the dreaded word “Budget”! It is something that we ALL know that we need to do but most people don’t do it.

WHY
That is a good question and everyone will have a slightly different answer but I can tell you what was true for me:

Ignorance: I had no clue what budgeting was. I knew it had to do with being more organized with money but I didn’t know where to begin. The only example I hearing about the government doing a budget and we know how that turns out.

I wanted to do what I want: If I wanted to get a new computer and I just HAD to have it I would get it. I would find out how to get it and how many credit cards I would get the money from but I would find every way to justify it. It is amazing what you can “justify” if you want something bad enough. If I had a budget I couldn’t get that new computer because then I would know even more so what I already knew that I couldn’t afford it.

HOW
There are many different technics to budgeting but I will try to give you a general overview. The first thing you must do is BEFORE you spend a single dime know where your money is going. What you need to do is either use a text program on your computer or write it out by hand and whatever you write out you must stick by. Make different categories and through trial and error you will figure out about how much money you need to set aside for each category.

Here is general example from my life… I get paid twice a month and the first thing I figured out is which paycheck will my bills, rent, utilities, etc come out of. Next I have to figure out how much money I plan on spending at the grocery store, for Gas, Entertainment, and savings. When I had debt I would after figuring out all the basics then I would put all the extra money to my debt (see my blog on getting out of debt for more info). Right now my emergency fund is a little low so I need to set aside a lot of money to savings. Also always set aside money for entertainment but if you need to be saving or getting out of debt you need to allocate a lot less for this category.

Some people think that budgeting limits their fun but it feel much better to have a budget than to use your ATM card and HOPE that there is still money in the bank or use your credit card and hope that the last payment went through. It feels much more freeing to know where your money is going.

Here are some questions that I had when I started budgeting:

What if I want to plan a trip how does that fit into my budget?
Here is how you would do it… Lets say you plan on taking a vacation 6 months from now and the trip cost you 400 dollars. Well you take that 400 and divide that by 6. So that would be about 67 dollars a month you would need to add to your budget each month. If the amount of money the trip will cost you per month is more than you can squeeze out of your budget then it is best you put of the trip for awhile. If you sometimes like to take last minute mini vacations a lot then plan for that by putting into your budget a vacation fund then you will be prepared.

What if I need to buy things like new clothes or shoes?
Same as with the vacation… you know you will need new clothes so you can save a little in each budget into a clothes fund so when you are ready to buy you will have the money.

What if something is on sale that I want?
If you don’t have enough money budgeted you can’t get it. The thing is it isn’t healthy to impulse shopping. I used to buy almost everything and anything I wanted as long as I could figure out how to get money for it. I discovered by waiting and budgeting I realize that I didn’t really need or want the item as much as I thought I did at the time. Have you ever went shopping only to come home with a bunch of stuff you really had no business buying and regretted it? If you see something and go home and think about it before you buy it you may be able to talk yourself out of the purchase. One way I overcome this is by making a Wish List on Amazon.com. A Wish List (as I mentioned in some of my other blogs) is like a shopping cart on Amazon but it is more of a favorites list where you can save a list of items you may “wish” to buy in the future. What I try to do is keep a wish list and then after the item has been on my list for some time I decide whether or not I still want it. If I don’t want it anymore I delete it. If I do want it I set aside money in my budget for that item.

Can I make adjustments to the budget after I make it?
Well the answer is maybe. I wouldn’t recommend doing it all the time but if you do make sure you figure it out on paper. Don’t pull what I had pulled when I would see something I “wanted” and thought “I know I have x number of dollars in the bank so I will buy it and then redo my budget when I get home”. The problem is when I get home I may forget or find that I won’t be able to buy as much groceries that pay period. Not fun.

How do I know how much money to set aside for each category?
This will take a few weeks to figure out. Since you will be watching more of what you are spending take a look at how much your are paying for gas and what you need to pay for every category. As you are watching what you are spending you will notice areas you could cut back on and other areas where you can save. Here are some examples: With gas lets say you set aside 70 dollars per pay period and you find out that you aren’t driving as much as you thought so the next pay period you would set aside less. Or lets say you notice gas prices are going up so then you set aside more for gas then you did prior. My suggestion is you set aside more than you need for a few weeks and if you have any extra put it into savings or into a different category.

What if an emergency comes up?
You need an emergency fund to cover emergencies. You should save, if you are out of debt or have a variable income, at least 6 months of expenses. That is something I am working on now. The thing is is you know that your car is going to have problems. Everyone’s car does at some point. You know things are going to come up. If you have money set aside now then when those emergencies come up you are ready for them. As mentioned before when I had things “happen” in my life I didn’t know what to do and I was in a panic and it was usually over a small amount of money. Now that I have a savings it doesn’t hurt as bad when I have to take my car in for repairs.

Prepare for the future
One problem today is that there are too many people who are living day to day and month to month looking at the problems that are in front of them right now. I used to live that way and it wasn’t fun. It is really easy to get cynical about life that way. You feel that you can never get ahead in life. Have you ever had the attitude when things are going good… “yeah things are going good right now but it is only a matter of time before something comes up and everything falls apart again. I can never get ahead in this world.” When you learn to budget you loose that attitude for the most part because you are looking to the future and saving money and budgeting your money in a way that you will be prepared for most of the problems that life has to throw at you. No it won’t protect you from everything but when life kicks you in the ass it will leave a much smaller dent then it did would have before.

Where I am at now
I have been okay at budgeting but what I am working on right now is learning how to look for better deals. I shop at a grocery store that charges inflated prices and the only reason why I go there is because it is close to my home. If I drove just 3 more blocks I could cut my grocery budget down by at least 30 to 40 percent.

Thanks for reading and I hope this has been a help to you.

Want to learn more? Check out Clark Howard’s page on Budgeting by Clicking here.

Updated on: July 30th, 2008

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