The word “budget” may seem like a dirty word, but during these trying economic times, it can be your life line. If you think “it can’t happen to me”, look around you; national unemployment is hovering around 9.5%. Unless you are self-employed, you have no idea what lies around the corner.
Sadly, the great majority of us have never had to budget our money. Our parents and grandparents grew up when times were lean, living within their means, on a budget, which became a habit. But, those of us born after 1945 have grown up in the land of plenty, quite accustomed to instant gratification. A budget can be a hard pill to swallow.
Do you live paycheck to paycheck? Do you “do without” as a result? Do you regularly bounce your account? If you answered yes to any of these questions, a budget will be your salvation.
The first step in planning a budget is to gather the family. Write down every possible, itty-bitty expenditure. You can transfer it to a computer spread sheet later, though many people prefer to use an inexpensive accounting journal; writing it in longhand seems to get their creative financial juices flowing.
Sort your expenses from the largest to the smallest, then focus your attention on ways to reduce your largest. If you can refinance your home, you may be able get enough to pay off your vehicle, which may enable you to put money into a savings account, a tax-free IRA or to pay off your high interest credit card debt. The end should always justify the means, so consider this carefully.
Now, look at your credit card debt and commit to becoming “plastic free”. You will want to save one or two cards for emergencies, but these should be cards you’ve held the longest and should be paid off along with the rest. You may even want to cancel the cards you don’t plant to keep, insuring you can’t add to your debt. Also cancel that costly “insurance” you have on each card. That money would be put to better use by applying it towards the balance.
Just start with the largest balance and start budgeting extra money to pay on that card. Do this faithfully. Once you have paid off one card, take that money and put it towards the next, plus what you’ve already been paying, then do it for the next and the next…. It may take some time, but time flies when you’re having fun! The satisfaction of paying off each card will be incredible.
Consider online bill pay to save on stamps, envelopes, pens, checks and time. Stamps and stuff add up, while your time is incalculable; add the cost of your morning latte at $3.50 ($910.00 annually) and the family dinner out 3 times a week (upwards of $4992.00 a year for a family of 4). If you start looking at the receipts for the last month or two, you can identify a lot of frivolous spending that can be cut or reduced.
Allocate money to savings and treat your savings account just like any other bill. You can’t take the money back that you’ve paid on your electric bill, right? Treat your savings much the same and include long-term goals like retirement, college and inevitable high dollar household needs in your annual budget.
No, it won’t be easy, but it will ultimately be extremely satisfying. Try it, just for a few months, and see how much better you feel. It really helps to know exactly where your money is going and as you save, having that financial cushion will be absolutely priceless. Budget is not a 4-letter word; it is a 6-letter word, just as “relief” or “comfort” is.
