What does it take to make a budget work? Does it come naturally? Are some people born with a pen and paper in hand, ready to follow a strict financial schedule until they die? Or is it something acquired?
Many people struggling with money ask these questions of the world. They look around them and see people so easily living their lives. They buy the things they want and always seem to have enough. It’s always been that way for them. They are just simply blessed with a natural self-control. For all anyone knows, they have everything figured out. It’s easy to envy that image. It’s easy to want what they have. What’s hard to swallow is that you will never be able to experience the financial self-control that your “image” possesses.
That’s not to say that you will never experience great self-control in regards to your finances. Indeed, if you create a fair budget, and practice very hard at it, you will one day reach a similar financial situation as the people you envy. You may never allow yourself to see your success though, because you weren’t born with it. The image of the people you look up to will always overshadow your own success, if you let it.
That image is a false example. The people that you see that seem to have been born with the money-budgeting mindset are often not as good as you think they are. They make mistakes like you all the time. No one is perfect at keeping a budget 100% of the time. Your financial idols are no exception. If by some miracle they are, then either they are well-off, have almost no financial obligations, or are simply not living a full or healthy lifestyle. The point of this explanation has not been to discourage you from making a budget–because not even the best can keep one up all the time. The point is to show you that you should never be discouraged from trying again. You can adjust and keep to a budget, why not give it a shot?
Create a Balanced Budget
Whether you currently have a budget or not, you should follow these steps.
1) Take out a piece of paper and list out every recurring source of income you currently have. If you have a regular paycheck coming in, then list out how much you expect to earn every month. If you sell clothing on Etsy, create a monthly average income expectation (subtracting money to set aside for taxes) and write that down. The key is to find recurring income items that you can count on seeing from month to month. Periodic income you get from the random garage sale should not be included as it can’t be counted on to make ends meet every month. Those additions will be nice, unexpected gifts to the savings account.
Once everything is listed out, add the income sources together until you have one total amount you will see at the end of the month.
2) Turn the paper over and list out every recurring expense you expect to see over the next month. This includes payments to any loans taken out (student, mortgage, etc.), average prices of utilities, subscriptions (TV, internet, phone, magazine, etc.), insurance policies, etc. Anything that sends you an invoice to be paid at the end of every month should be included here.
This section should not include expenses that can change from month to month. For example, the amount of gas you use, food you eat, and entertainment you purchase can all vary from month to month based on your decisions. You decide how much money to dole out for each of these things on a day to day basis. They are not to be considered recurring expenses because you shouldn’t assume an amount just yet. Call them variable expenses and save them for later.
For now, focus the organizations that are sending you a monthly bill. List how much you have to pay them each month and add them together.
3) Subtract your total recurring expenses from your income and find out how much money you have left over. If you’re already in the red, then you can expect trouble in the coming months. Either you need to find another source of income to help out, or cut some of your expenses.
Adding Another Line of Income
Taking on another job can be tiresome. It is an easy solution to your problem, but not the most sustainable, especially if you don’t choose your hours.Other options include talking to your spouse about taking on a part-time job, looking for a higher paying job yourself, or selling a craft or service on the side. Consider your circumstances and find a way to add another line of income.
Although things like a mortgage and utilities can’t be cut without serious consequences, that TV subscription isn’t needed. Neither is the landline or internet when it comes down to base survival needs. Magazines are available online and other subscriptions have viable alternatives. For example, you can watch your favorite TV shows on the internet just hours after they air live. If you can’t live without seeing it while it’s happening, visit a friend’s house who will also be watching it. You don’t pay the bill, but get your show.
Cut financial obligations to places that really don’t matter to survival. You can add them back in later if your income increases. Assuming that your income is sufficient to meet your recurring expenses, continue onto step 4.
4) Take what’s left over and write it at the top of a new piece of paper. This is how much you have left to pay for food, savings, gas, school, hobbies, etc. Everything you plan from now on will be bound to this number, so be careful.
Henry David Thoreau said that all you need in life is food, shelter, clothing, and fuel. Providing that food is at the very front of that list, you should start with that first. Look at your past food bills and determine how much you spend to eat on average. Include in this number money spent eating out or buying snacks. Write your total down.
Your shelter is taken care of back with your recurring expenses, so move on to clothing. Take an inventory of what clothes you have and what you need. Then think about how much each of these are going to cost. Write that number off to the side of the paper. Then track how much new clothing you bought in the past 12 months. Find out how much that cost you and plan to spend a similar amount in the coming year. Write that number down under the food total.
Your fuel is taken care of with the recurring expenses as well, so continue working through things like gas, money for savings, cleaning supplies and other things that you purchase on a regular basis. Total how much you spend for these things on average and list them below the food and clothing numbers. If there’s anything that you need right away (like the clothes you set to the side) put those numbers off to the side to be used later). When you’ve thought of everything, add them all up and circle the answer.
5) Subtract that circled answer from the “left over income” that you put at the top of the page. If you’re in the black then celebrate, because things are going better than expected. If you find yourself in the red, then look into either increasing your income or cutting your expenses again.
If you’re in the cutting mood, then try some of these ideas, if not, then find a way to increase your income and skip to step 6. These expenses are a bit easier to cut than the recurring ones. Decreasing them all by $5 or $10 can translate into huge savings over the month. Evaluate each item and figure out where you can cut expenses down and by how much. If you’re still struggling to get the ink to change from red to black, then look for creative solutions to cut more. Make a plan to eat out less or only buy things that are on sale. Do what it takes to reduce your expenses. Once you’re in the black, move onto step 6.
6) Double check all that you’ve done. If you’ve reached this point and you’re in the black, then you’ve just created a budget for yourself. You’ve carefully calculated every increase and decrease in your financial situation every month. You have created an expected amount of money to spend for everything and you have goals to live up to. The only thing you can do now is live by your goals. Do not spend a penny more than what your budget allows in the coming month, even if it hurts. Don’t do it. You will learn self-control if you hold yourself to it. You will strengthen disobedience if you let yourself slip. Give yourself consequences and don’t make exceptions. You’ll be a good budgeter in no time if you stick to your guns.
Don’t compare yourself to others. You don’t know the whole story. Focus on your budget and your needs; those are the only things that will matter in the long run.
One last note, start adding in those needs you wrote off to the side. This isn’t officially a step since it shouldn’t be a part of a monthly budget. Now that the budget is complete, come up with a solution while you’re thinking about money. Find a way to afford those things and move forward. As you’re working on building your budget it’s important to understand that unexpected expenses will come up, that’s how life is. If you find yourself in a situation where you are in need of a short term loan, let Check City know and we can help you out.