Why Do I Need A Budget?
Because if you're like most of us, you're not an intuitively brilliant financial genius!
Like most of us, you need a guide -- a plan -- to help you tell your money where to go, and how
to work for you!
The good -- no, GREAT -- news is that you CAN get your expenses under control, and you CAN
win at managing your money.
What do I need to get started?
You need two forms in particular -- the Monthly Cash Flow Plan, and the Allocated Spending Plan.
Okay, I have the forms. Now what?
- Write up a budget for next month, and next month only. Use the Monthly Cash Flow Plan for this.
(or type in) everything you can think of that you'll have to pay in November (and early
December, too*.) If you have a program like Quicken or MOney, you might benefit from looking
at last year's expenditures for the same month to remind you of periodic or special expenses
that don't apply every month, but do apply in that month only (birthdays, anniversaries,
holiday-related stuff, etc.)
If the total amount you've written down is less than your income for the month, allocate the
remainder to something -- usually a generous "Blow" account is a good idea when you're
first getting started -- it gives you a place to allocate money for your budgeting mistakes!
No matter how you divide it up, it's important that you spend EVERY PENNY on paper; this is
a very important step in taking control of your budget. It's not that you'll be able to
anticipate every purchase, but you can plan even for your "unstructured" spending. At our
house, for example, we have line items in our budget for pocket money for both my wife and
me. I get paid weekly, so every week we each get some cash that we can use any way we like.
But if either of us needs more than that, we update the budget, taking it from another line
item so that the budget still balances out to zero! If we need less, we just keep the extra
and save it for little surprises, etc.
If the amount you've written down is MORE than your income for the month, you don't have enough
money (Duh)! This is the time to figure out what to cut back on. You must ALWAYS fund the
essentials -- housing, food, utlities, and transportation. Next on your priority list are
items that incur harsh penalties if you miss them -- IRS debt, child support payments, student
loans, etc. Other secured loans come next. Last on the priority list are consumer loans,
credit cards, etc. If you don't have enough money to make minimum payments, use the Pro Rata
form to help guide you in paying everyone a pro-rated amount.
- Allocate ALL the dollars you spent on paper in the previous two steps to
each of your paychecks using the Allocated Spending Plan. For example, if
you get paid twice a month, divide up your expenses between those two checks.
- Update the budget when unexpected expenses happen. Add them to your
Cash Flow Plan, AND to your Allocated Spending Plan. You may need to "take" money from the "Blow"
category or some other place, and apply it to the new expenditure. And if you get more money
than expected (commissions, bonuses, etc.), UPDATE the budget accordingly by allocating EVERY
PENNY to your categories, just like you did in the first step.
- Mid-way through the month, start working on the NEXT month's budget, doing all of this all
*As your working out your budget, keep in mind that some expenses early in the month may need
to be taken care of by a paycheck you got in the previous month. Similarly, one of your paychecks
for the month you are budgeting may have to take care of expenses early in the next month. Forgetting
this sort of "overlapping" item seems to trip up many first-time budgeters.
Are you married?
If so, it is very important that you and your spouse work agree on the budget. You don't
have to both create it; in fact, Dave Ramsey teaches that in almost every marriage at most
one spouse is "nerd" enough to actually write/create the budget. But once that's done, you
both must be committed to making it work for you.
Will I see immediate results?
It typically takes a few months to get a budget working really well, so be patient and give
Good luck, and GET GOING!