Budget Basics #1 – Preparing for your Budget
Starting a budget is one of the hardest steps on the road to financial freedom and there is no wonder why. Its not just saying “I’m on a budget” and curbing your spending. Budgeting as a whole is a process you have to under go before you even start documenting your spending.
Many people start off creating a budget with no problems and later fall off the proverbial wagon because they weren’t ready for the mental gauntlet ahead. They didn’t prepare and now their budget is merely a worried voice in the back of their heads. They just knew empirically that having a budget is a good thing, and is the responsible way for maintaining their money. Even knowing this they still fail. This is because they didn’t prepare themselves as they prepared their budget. You wouldn’t build a house that wasn’t designed first would you? Of course not. So here is the design process your budget should go through before being made your new standard of living.
I didn’t learn how to budget growing up, but over the past month I’ve taken the following steps and prepared myself to live within my newly budgeted means.
Why are you creating a budget? – saving money is the obvious reason, but do you have a specific goal or reason in mind? Are you saving up for a vacation, retirement or just to build a nest egg? Sure money is money, but saving for a vacation is quite different than saving for retirement. Know your goals, your reasons and your expectations before you begin. This also helps when you’re struggling against your old habits because you will have a goal to keep your focus on.
Which goal is the most important for you? - You can’t very well train to be a race car driver and a fighter pilot at the same time. Your finances are no different. Pick what is most important to you, and adjust your finances to meet one goal at a time. If your goal is to get out of debt, you can save yourself some interest and worry by focusing on one debtor at a time. Get one off your list, then move on to the next, and because you’ve eliminated one source of interest (in favor of the banks) thats even more money you can put down on your next debt. WIN/WIN Baby!
How long will it take to accomplish your goal? – This is very important. Setting the right expectations is everything in business, and in life. If you are expecting to pay off $10,000 in 2 months and you only end up paying a measly $350 then you can bet you will grow discouraged and fall off that wagon right away. This is what happens to most budgeteers.
What are the fun things you can’t go without? – Life is about enjoyment and your budget should be too. What is the point in not spending any of your hard earned money if you’re miserable while you’re doing it? Only focusing on saving and spending none is a quick way to grow tired of your new lifestyle. The old saying “All work and no play makes Jack a dull boy” hold true here. The key is not getting rid of everything that costs you money that you do for fun- but to streamline and minimize your spending to not only meet your goals, but also to keep yourself well balanced. So order your favorite hobbies, regular events, etc that you cannot bare to miss, and then number them by importance. (example: You may hit the club every Friday night, but is that $40 spent out on the town more important to you than say hitting the gym every month? If not cut the partying and keep the gym.)
Monitor your spending before compiling a budget – Why? Because you will not catch everything deciding to start a budget. There are always categories and items needed to be purchased but so rarely that they don’t stay on your mind long. (think oil changes, union dues, home maintenance, etc.) Brainstorming all your spending at your leisure will help seal up any missed holes before your ship is out to sea.
What are your spending weaknesses? – Are you like me and can’t walk by or out of a bookstore without buying something? Identify your weakness and either steer clear of them completely while you find your balance on this budget or come up with a plan or reward system to help curb your spending. I’ve found that I can buy a lot of books for incredibly cheap at my local thrift store, so I reward myself every 2 weeks with 1 or 2 books when I stay on budget. I walk out feeling like a million bucks, my budget barely notices the $2.50-$5 hit, & I’ve reinforced good spending habits. This is important. Don’t feel ashamed to ask for help from your loved ones- having a good support system can honestly make this one of the easiest steps here.
Look at your bills a head of time - the reasoning is simple. If you can find you’re overpaying for services you’re already paying for (or even better not using anymore) you can eliminate the extra costs and pad your budget accordingly. My wife and I saved $140 this month alone switching insurance providers and eliminating a $10 a month service we hadn’t used for a year. That’s $140 we can put towards our savings goals right now!
Find a good budgeting tool you’d like to use – So many people spend weeks or months not budgeting their money because they can’t find a tool they’d like to use to budget their money. Don’t be that guy. Look in advance for a tool you’ll like or get a pen & paper to do it the old fashioned way while your high tech solution makes its way to you.
Know your (real) income – Most people know their yearly take home income (net) or they know their gross. Most don’t know both. You can’t possibly create a valid and accurate budget if you’re using the amount you received before taxes. Always use the figure you get AFTER taxes are taken out.
After you’ve done these things you’re ready to create a budget of your own- and more importantly you’re better mentally prepared than your peers attempting the same thing. You’ve set yourself up for success. Now expect it so you can achieve it. Check back next week for part 2 of our Budget Basics series.
Tags: budgeting, budgets, money, personal finance, saving
See more great articles like this at http://theprofiteers.wordpress.com/
