There’s one word that makes many individuals shake with fear…the “B” word, or budget. Many have the misconception that if you create a monthly budget, it will tie up your money in some way and you won’t have use of it.
Of course, that’s not the case at all; the budget enables us to see where our money is going. More importantly, a well-planned budget will let you get a handle on your spending so that you will know just where and how your money is spent. You’ll know how much is going for rent or mortgage, utilities, groceries, and also lunches and entertainment.
If you create a monthly budget, you’ll have a plan where you can set financial goals for your life and you’ll have the ability to see where you stand at any point in time. Besides allocating funds for the regular bills, you’ll also set up accounts for savings, investments, future purchases, as well as college for the children.
Some individuals like to work with spreadsheets when they create a family budget, but we don’t recommend that method. It won’t give you the types of reports that you will need, nor will it be able to show you what your financial net worth is.
There are several good, inexpensive, budgeting software programs available that will do the job for you. The first item to take care of when you create a budget is to setup the income accounts. Salaried individuals generally have a fixed amount each month. Those that work on a commission basis or perhaps are self employed may have to make an estimate.
One software package that we recommend takes that into account, and uses the previous month’s income already received to cover the current month’s expenses. Once the income accounts are setup, then the listing of expenses needs to be done.
The fixed expenses such as rent or mortgage, car loans, insurance, and any other items that are paid monthly will have accounts setup also. There will be other variable expenses that will need to be accounted for as well. These will include gasoline, groceries, lunches, and some entertainment.
Some of these will be paid by cash and some may be paid by credit card. Practically every individual will create a budget that is a little different because we all have different lifestyles.
Once everything is setup in the software program, you’ll be able to see quickly whether you have a positive or a negative cash flow.
Hopefully, your income will be sufficient to cover all of your expenses, both fixed and variable, plus a discretionary amount of cash available. If not, some of the variable expenses will need to be adjusted. What you don’t want are a lot of expenses being charged to a credit card, and not being paid in full each month. Bad news.
Too many individuals have lifestyles that exceed their income and they are living paycheck to paycheck. The monthly budget software program that we recommend will teach you how to break that habit.
Learning about money management is very important and putting it into practice is critical. Planning is very important in life and creating a family budget is a part of it. The key is to create a workable budget, and one where you review it periodically and make changes where necessary.
If the budget is highly restrictive, you most likely will not follow it very long. At that point, credit card usage may increase, and the balance outstanding may max out. At that point, more problems begin and so does the stress.
A part of good money management is to understand the difference between out wants and our needs. If you have the income to accommodate your wants, then for you, it probably won’t matter much. But, that is rare today. Many individuals struggle just to have their income cover their needs.
Often times, many of us need to be a bit more frugal with our money. There are ways to have fun by doing things that don’t cost very much. You don’t have to live in a cave to be frugal, but you don’t have to appear to be one of the players either.
Find some medium ground with other friends where you can enjoy each other’s company without putting a strain on a budget.
Don’t expect some miracle to occur in a couple of weeks after you create a monthly budget. Be patient, make changes where necessary, and do your best to make your budget succeed. After that, you will begin to see those long term financial goals come to fruition.