When the word budget is mentioned, what sort of reaction does it provoke from you? Does it make you feel like a 3-year-old again, when Mom is trying to ruin all of your fun because you can’t stick the fork in the electrical outlet?? Or maybe you just have feelings of being restricted, not allowed to spend your money the way YOU want to spend it.
But what if I told you that, by creating a simple budget, at the beginning of every month, it actually will give you more freedom with your money? It’s true; by giving every single dollar that you earn a name and a place to go each month, you are telling your money what it’s going to do for you, and not allowing the expenses of the month to happen to you. Because that’s how the month goes, right? You get paid, and are “flush with cash”; you decide to treat yo’self, maybe going out to a nice dinner on the town, or head to the mall to pick up a few outfits that “you deserve”. Then, unexpectedly, your washing machine decides to konk out, and it’s going to take $200 to repair. And then little Jimmy comes home with a note about an upcoming field trip, that you need to send $45 in for. And you forgot about the vet appointment this week for Buster, that you’re going to have to shell out $500 for his annual vaccinations. And all of a sudden, that flush feeling is gone, and you’re wondering how you’re going to make it until the next payday.
If any of those feelings hit home for you, you are not alone. A recent report shows that 76% of Americans are living paycheck to paycheck, and over half of Americans don’t have savings enough to cover a $1,000 emergency. Sadly, many just put their expenses on credit, hoping that someday, they’ll get over the hump and begin paying down the balance. In reality, it’s a vicious cycle, and without making a conscious decision to change the way you handle your finances, it’s an extremely difficult cycle to break.
That’s where the monthly budget comes in. And if you’re still getting the heebie jeebies over the term “budget”, let’s call it your monthly game plan to putting your money to work for you! It doesn’t have to be an overly complex process; you could start one today, with a piece of paper and a pencil. I recommend the zero-based budgeting system; you start with your monthly take-home pay, subtract your monthly expenses, and this should net down to zero. Every dollar is assigned to either an expense, paying down a debt, or put into savings. With regards to monthly expenses, some categories are fairly straightforward, and stay constant from month to month (for example, your mortgage or rent payment). Some categories, such as gas or groceries, tend to fluctuate. And then you will probably have a few categories that don’t occur every month, but maybe only a few times per year. But if it’s going to occur in the current month, it needs to go in that month’s game plan.
You are not going to have a perfect game plan the first month, or probably even the second or third; this is why we do it in pencil. Forming a new habit typically takes anywhere from 60-120 days, maybe longer. But I’m fairly certain that as you work your way through the first few months, at least one of several things is going to happen: you will either find money in your game plan that you can put to better use (paying down debt or saving for a rainy day or specific future purchase), or you will identify one or several areas of overspending, that you will have to become more disciplined about. Either way, you are becoming more intentional about your money, and intention leads to freedom. And more freedom is what we are all striving for, right?