by Michelle Jones
Budgeting is like balancing your checkbook but not quite as simple. There must be enough money coming in each month to cover what's going out. If your expenses total more than your income you may be headed for trouble. What makes matters worse is that many families do not budget and, therefore, do not even know how bad their finances really are.
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Sure, you can make up the difference with bank loans and those little plastic cards for a while but it may turn out to be a horrendous mistake if things don't go as well as you hope they will. When someone gets sick, loses a job, or worse, what will you do then?
If things are going well get your budget balanced now while it's easy. But if things are already a big mess it's never too late to get them straightened out. It may just take longer and be more difficult.
Moving down is never as easy as moving up but the sooner you get your finances in order the sooner you will have a better life. I'm not saying you can't have a good life with a mound of debt on your shoulders, in fact, depending on what kind of debt you have, you may be living quite the high life already. When you sit down to pay your bills, when you see those debt balances rising, how good are you feeling then?
You don't need an expensive money management software program or an accountant to create a budget. All you need is a pencil and eraser, a few lined sheets of paper or green columnar pad, and a simple calculator. If you're computer savvy you can also use the spreadsheet program Excel to make your budget.
Creating a Budget
Make a list of your monthly bills and basic needs such as housing, utilities, household groceries, prescriptions and gasoline for the car. Go ahead and add these up. You should have a surplus when comparing this total to your monthly income.
Now make a list of your extra expenses for everything else; such as insurance, medical co-payments, car repairs, vacations, gifts, clothing, eating out, etc. Are we doing okay? Still have a surplus? If so, great! If not, don't panic. It's probably been this way for a while. You just weren't looking at it clearly written out.
The Balancing Act
Since your outgo must not exceed your income, but already does, you'll need to get to work to bring your expenses down as soon as possible. What would happen if your checkbook or bank account were short? Wouldn't be too great would it? Well, it's even worse for your budget to be short because the bank can't send you a notice. Your debts may just silently rise higher and higher, trying to make up for the shortage, until you're over your head and have no way of paying them off.
After you've written down all of your bills, basic needs, and extra expenses, how's your total look now? Compare the total amount to your income. Is there a cushion after the bills are paid? Is there nothing left, or worse? Whichever the case may be, write this figure at the top of the page with a bold heading... "Surplus" or "Short"
If you have a surplus make sure you are investing it wisely and not just letting it sit in the bank. Three great books that I recommend are: Investing For The Future, by Larry Burkett, Investing for Dummies by Eric Tyson, and The Wall Street Journal Guide to Understanding Money & Investing, by Kenneth M. Morris, et al. For future reference you can also find all of these book titles on my recommended book list.
If your budget is SHORT sit down and study it thoroughly. Here's a list of what you can do to help balance your budget and change that to SURPLUS:
* See if any of the items can be cut back. If you've already cut back as far as you can go, look again, there may be one or two more things you can cut back a little further. Bring your lunch to work. Have a picnic for the kids with a packed lunch instead of a trip to McDonald's. And when you do have to order out always order water. It's still free in most places. Learn how to cut your family's hair or even grow yours out so you don't need a cut as often.
* Spend less money on groceries, shop as frugally as possible, use coupons, forget the name brands unless they are on sale for less than the store brand, and shop at several different stores to purchase the sale items. Eat what's on sale; not what's on your menu.
* Cut out all additional and unnecessary spending.
* Cancel the cable, newspaper, and magazine subscriptions (you can get a refund for the remaining issues).
* Borrow new magazines, books, and CDs from friends or your local library instead.
* If you have debts pay them off as quickly as possible. This will instantly create more income every month.
* Have a garage sale or try selling a few things at consignment shops, especially for children's items, expensive clothing, and accessories if you have them.
* Let your friends and family know you're having to tighten your budget and need to forego gifts temporarily. It's likely they've experienced a few difficult times themselves and will be very understanding of your situation.
* Maybe you can get by with one car instead of two for a while. Especially if you're currently shelling out two car payments. By doing this you'll also cut your car insurance and upkeep almost in half.
* Increase your tax exemptions to get your money each month instead of waiting for a big refund at the end of the year.
* Downsize to a less expensive house payment.
* Increase your income, but be careful, without a good budget in place the additional money coming in will not help.
Examine every expense you have and try to lower it or cut it out all together. Now that you have your current budget already written out you need to make another page for your 'ideal' budget. I don't mean your ideal income. I mean your ideal outgo that will create a SURPLUS for savings.
Once this ideal budget is written out you will know exactly where you need to make adjustments. It may take some time to get your budget balanced but the sooner you get started the sooner it will happen.
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Copyright © 2001, 2015 by Michelle Jones. All rights reserved.
