Creating a Budget That Works
I know, I know. Budgeting is everyone's least favorite subject. But, for most of us, we need to do it anyway. I have tried many different budgets over the years and nothing seemed to work. I have finally found a couple of great ways to budget that have worked for me now for over a year. Staying flexible and planning ahead of time how you want to spend your money are two of the best ways I have found to make budgeting easy and workable.
I used to sit down whenever my husbands pay changed and figure out exactly how we were going to spend that money each month, usually for the next year. As if I can tell you how much my electric bill will be in September or how much I will need to spend on gasoline in March - months in advance? It isn't going to be realistic. What ended up happening is we would get very frustrated, because nothing ever worked out like it was supposed to on paper. This has all changed.
I have read a lot of finance books over the years. My favorite are those written by Dave Ramsey. The Total Money Makeover is a great budgeting book. Financial Peace is a great book on money in general and does talk a little about budgeting. Dave Ramsey was a millionaire in his 20's and then went bankrupt. He was again a millionaire in his 30's. These are very inspirational books and I highly recommend reading one or both.
Following Dave Ramsey's advice, we now create a budget every single time my husband gets paid. This sounds like a lot of work, but it is really quite easy, and we stick to it and we don't get frustrated. We get random medical bills in the mail depending on when and who and for what we went to the doctor. There is no way to plan for this. By adjusting my budget for that two week period to accomodate for this, it works really well. Maybe both cars have full tanks of gas, so we don't have to budget that expense in for those two weeks (normally we don't drive far for anything). Maybe we are having company for a few days and I need to have more in the grocery budget to handle that. I can adjust for that each payday.
When my husband gets paid I write down all the bills that need to be paid and subtract those out of the paycheck. I include the portion of the house payment that needs to come out of each paycheck, just like it was a bill. Then I take into account the variables. DoI need to buy any birthday presents that pay period? I always set aside money each pay period to cover gifts, but maybe we have four birthdays coming up and I need to add extra into that portion of the budget. My food budget fluctuates a great deal. Recently, due to a large number of medical bills, I was only able to allot $50 for food for those two weeks. It was hard, but we were able to do it by using our pantry and freezer stockpile.
Other variables in our budget include gasoline purchases, toiletries, kids activities, eating out (we don't do this very often, but sometimes I get the urge and then I budget it in for the next pay period), utilities such as gas and electric (others such as phone and cable stay the same each month), clothes, postage (I don't ship packages or buy stamps every pay period), and holiday items.
My point is, for most people things change. Bills and items needed change frequently. By taking 15 minutes to sit down and think things through and create a plan for our money, we have been able to stick to a budget and not get frustrated. We remain flexible and take things that pop up in stride.
We also budget down to the penny each pay period. This includes savings. We decide ahead of time how we want to spend our money (Dave Ramsey really recommends doing it this way, as it gives you more control over your finances). We do not just fumble through the month hoping we have enough at the end of each pay period to buy food. We plan ahead of time and make sure we have everything covered. If a bill comes in during that pay period that wasn't in our plan, it can generally wait for the next pay period. If it can't wait until the next pay period, then you already have everything down on paper - spend a few minutes figuring out where you want to rearrange, so that you can accomodate for this new item.
Deciding ahead of time how you are going to spend your money allows you to make sure you have enough money alloted for everything that needs to be covered, and gives you the freedom to spend it that way. If you decide you want to purchase a new DVD that week, budget it in for that pay period and then purchase it. Having it in the budget allows you to make that purchase without feeling guilty or wondering if you will now have enough to cover your basics. You already know you have enough to cover your basics because you decided ahead of time that this was how you were going to spend your money.
What about spontaneous purchases? Well, this is how most people get into trouble with their budgets to begin with. Trying to plan ahead for everything is the key to staying in control. However everyone needs a little freedom right? So budget in some money for you to blow on whatever you feel like. The amount is up to you, your spouse if you have one and your paycheck. But if you budget in $20 that week as blow money, then when you decide on the spur of the moment to eat lunch out or purchase a pair of shoes, you can do this, as long as you have that much blow money leftover.
Having a plan ahead of time will allow you to spend your money the way you want to. Instead of getting that third paycheck of the month and running to the mall with it, sit down and create a plan for it. Maybe you do need to go shopping for some new clothes. But maybe it is your wife's birthday next week and you need to get her a gift. If you spent everything before you had a plan, you would not have anything left to cover the birthday gift. You can easily still allot a chunk of money to be spent at the mall, but thinking ahead as to how you want to spend it, will at least allow you to know you have everything covered that needs to be covered AND allow you to go shopping without feeling guilty.
Budgeting doesn't have to be hard (there are calculators now, right?), it doesn't have to take very long (I spend about 15 minutes every two weeks) and it doesn't have to cause problems or be frustrating. The whole point of having a budget is to make your life easier. Having a plan for your money is very important and gives you a sense of being in control of your finances. When your finances are out of control, it can spiral down quickly and you could easily end up in debt - more and more each month, if you aren't careful. Staying flexible and telling your money what to do (not it telling you what to do) will make handling money so much easier.
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