Creating a budget is not the end of the world and it doesn’t have to mean that you are forced into a corner financially. Most people hear the word “budget” and suddenly feel like they are doomed to the no fun zone.
The truth is, a good budget for your household will free you up and open new horizons. Part of that includes no longer jumping at every sale you come across, yes. It also means being real about needs and wants.
That sounds like a great place to start…
A need is extremely simple. You need it to survive financially or physically and can’t do without it. Here is a list:
- Food/Water
- Shelter
- Debt Payments
- Necessary Clothing
- An Emergency Fund
Food is rather simple and clear. You can save money on food by working the grocery and drug stores each week, but this doesn’t mean eating lobster every day either. Stick with seasonal fruits and fresh veggies to save money on produce and you have to stay reasonable in such areas.
Shelter is all about the things that keep you alive and protected from the elements. Your mortgage, light bill, water bill and so on have to be paid (and there are ways to cut your electric bill) or you find yourself on the street.
Debt that you currently have can’t be ignored or avoided so you must budget this as a need. You have to keep working on paying down any debt that you owe. Just don't add more debt to the equation and call it a need.
Ah...the necessary clothing. Let me ask you a question...Does a pair of Walmart jeans keep your butt warm in the winter? Are you warmer in those Calvin Kleins? Necessary clothing is clothing you need to stay warm and perform your job and there are plenty of ways to save money on clothing. It does not mean to head out and get those red hot stilettos for “only” $500 bucks. Basic clothing needs go here and the stilettos are firmly in the next category unless of course you use the stilettos for your job….ahem.....moving on.
An emergency fund is the one area that gets passed over most often and it is exactly why debt exists in this world. If we prepare for our own emergencies, then we never need to finance cash advances and other expensive things.
Notorious budget busters that are not “needs”
- Cable/Satellite television
- Cell Phone
- Going out to Eat
- Extravagant Living
You can argue for or against these things above and you certainly could add to the list, but the bottom line is that you can survive without them. Nobody can watch 1272 channels anyway.
Now that the basics are in place and you have a list of wants and needs, the rest is easy.
How To Create a Budget
Sit down and figure out your actual income each week or month from your job. This needs to a be a real number and not something you are expecting to get down the road. You can't count on that bonus you are expecting in 6 months or your tax return when creating your budget. That can get you into real trouble if you begin budgeting on something that has not happened yet. Life changes and your budget needs to be steady and calm.
Take your income and begin taking away the needs you must have on a worksheet. Mark each item clearly and show the math so that you see what is happening each month.
Whatever is left is considered your expendable income. Make sure you put aside the money for the emergency fund. The amount is up to you but the more you put back the better. Believe me when you need it you will be so thankful that you will never go without one again.
Now that you have taken out the needs and the emergency fund, it is time to figure out charity and wants. This is the part of your budget that determines what you can and can’t afford. Budget your wants accordingly and resist the urge to overspend your budget. You will likely slip and fall, but get back up and fix any mistakes immediately.
Budgeting is really that simple but you have to take the time to do the work and STICK TO YOUR BUDGET. If you write a budget that gains dust and rarely is even looked at, you will fail for sure. Keep it handy and refer to it when you are determining if you can spend money. Take the emotions out and let the math lead the way. You will be surprised at the freedom that structure will create!
