Have you ever reached the end of the month and asked yourself where all your money went as you scramble to pay your rent or mortgage? You know you’ve been working hard, you know your paychecks were deposited or the cash was in your hand and in your pocket when you were paid. So where did it go, and why does the same thing seem to happen every month?
Sounds like you could use a budget.
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“A Budget is simply telling your money where to go instead of wondering where it went.”
– John Maxwell
It’s Easier Than You Think…
The real problem with budgeting is that is rarely given sufficient priority. Think about it. You go to a job to work mostly because you need to eat and pay rent and perhaps be able to go out for coffee or a drink with friends (hopefully you enjoy it on it’s own as well – but that’s a topic for another post).
What if you couldn’t do any of these things without first putting together a budget? Or, what if that special someone you were just dying to go out with required you to have a working budget in place before going on a date?
I think a lot more of us would be doing budgets. It’s definitely easier than some of the effort we put in to get all the things listed above.
Budgets require basically the following information:
Told you it was easy. Furthermore, YOU are the one who has the most control over each of these categories. You can learn more, work hard, gain experience and thus increase your ability to earn income. You can watch what you buy, put limits on your wants, and prioritize saving to decrease your expenses.
Once you have these two amounts totaled up, subtract your expenses from your income. The goal is to hit Zero – where every dollar you make is given a purpose, or “spent on paper,” every month before you bring it home.
If you came up with a negative amount, you may need to decrease your expenses in the short term and work to increase your income in the long term. Use an envelope system with cash to help limit spending on food or entertainment, for instance, or cut back on amenities like cable and underused or unnecessary phone or other services. You can always get them back when you begin earning more.
If you came up with a positive amount, you need to tell this surplus money where to go. Preferably this would go towards outstanding debt, an emergency fund, or if both of those things are taken care of, to savings for purchases, investments or retirement. If you don’t do this up front, you’ll be wondering where it went at the end of the month.
…But It Takes Time
A quick Google search will tell you that the time to learn a new habit is about 3 weeks. Budgets are generally done monthly, so it may take about 3 months to become a habit since repetition is a key factor in learning. There are numerous resources on the web for help on the details of doing a budget, and I highly recommend the resources on Dave Ramsey’s website. I’ve included a few specific links below to get you started.
“You will either learn to manage money or the lack of it will always manage you.”