Budget. Ugh. Most people sigh when they hear the word. Sounds like it takes a lot of time and, even more, sounds like it’s going to take away all your fun. Budget? No, thanks.
So let’s call it a SPENDING PLAN! And let’s focus on all the good things a spending plan can do for you. First, it helps you reach your goals and dreams. Second, it allows you to see where your money is going so you can have control. And third, it reduces stress so you can stop worrying about money so much. Now this sounds better, right? So let’s talk about four simple steps to create a spending plan that will work for you.
1. Identify all your income for one month. This includes wages from jobs, alimony or child support, government assistance, assistance from HOPE or other organizations, gifts, etc. Add up all the income and write it at the top of a page. Call it TOTAL INCOME.
2. Now, a part that is a bit time-consuming, but it will be worth it! So give it a try. What you have to do is write down all your expenses for one month. Break these up into different categories, which you should list on a page.
Some categories are easy: things like monthly rent, insurance payments (if this is paid every 6 months, divide the total by 6 to figure out how much it costs per month), child care expenses, car payment, cable or cell phone bill, etc. Also include debt payments, whether you make the minimum payment or something larger.
Some are a little trickier, and here’s the homework part: carry a small notebook or pad of paper and jot down your expenses as you go about your business each day. Grocery shopping? Make a note of the total. Gas, vending machine, parking, other expenses? Jot it down. At the end of a week or so, tally up the total in different categories: food, gas / transportation, clothes, laundry, other. By the end of the month you’ll have a good idea of how much you spend in each category.
3. Add up all those expense categories and call it TOTAL EXPENSES. Do a simple math equation: TOTAL INCOME – TOTAL EXPENSES = ?? If the total is a positive amount, you are spending less than you earn and operating in the black. Great! If the total is a negative number, you have more expenses than income and are probably going higher in debt each month. Changes need to be made. Luckily, you’ve done the most important first step of identifying where the money is going.
4. If your expenses are greater than your income, there are two things you can do to get your spending plan in better shape: (1) increase income; or (2) decrease spending.
- Ways to increase income include working additional hours or a second job, selling items on ebay or at a garage sale, seeking additional assistance from the government, scholarships, etc.
- Decreasing spending can be done in drastic steps or minor steps. For example, you might look for a less-expensive apartment to reduce monthly rent payments or trade in for a less-expensive car. Or you can make smaller changes that can add up, such as starting to use coupons, calling your credit card company to ask for a lower rate, or shopping around for lower insurance rates. Many people find they spend a great deal on eating meals out of the house. A small change, such as packing a lunch 3 days a week, can make a great change in your total expenses.
The time it takes to monitor income and expenses and actually write out a spending plan will pay off in dividends. Don’t use the “budget” word. Don’t think of it as taking away your fun. Think of the spending plan as a way to find more money for the kind of fun you want to have.