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How to budget money
By Anita |
Eek, I used the B word!
A fair number of people (50,000 or so) type the word “budget” into Google every day. Lots of other people use the word budget in phrases they type in Google. For example, 30 people each day type “how to budget money” into Google so that’s why I used that as the (boring) title of this blog post. I’ll play along and use the dreaded B word, at least this once.
Just because I’m using the word budget doesn’t mean I have to think about budgets in the conventional way, however. Budgets are like diets; it’s easy to start strong and have early success but hard to stick with them over the long haul, unless one has OCD tendencies, because it seems too stifling and too exacting. And flat out boring.
Most of the time a budget is more like a wish list. You write down all your monthly expenses. You write down your income. Then you hope that there’s enough money to cover all those expenses and try not to have a panic attack. It’s all well and good to have this spreadsheet of numbers in front of you. But now what?
With a conventional budget, the money seems to have all the power. In reality YOU should have the power of your money, even if your income is insufficient and you are going through a difficult time.
For me, it has made all the difference to turn this mass of numbers into a prioritized spending plan. I learned this from Dave Ramsey and it is one of the things that has helped me the most in managing my finances.
With a prioritized spending plan you list your monthly expenses from the most important to the least important. The most important expenses in any budget are food and shelter. When the paycheck hits your checking account you immediately withdraw money for that week’s food expenses (groceries, school lunches, meals out). Then you set aside money for the rent or mortgage payment.
With shelter and food taken care of you can live to fight another day. Other expenses that are a high priority are heat/electric, water and clothing. You can really live to fight another day if those expenses are met.
Note: Mastercard and Visa do not take priority over these expenses. Yes, the credit cards companies might call if you’re late, but whoopie do. You have higher priorities. By knowing that your important expenses are taken care of for the month you will have more energy to handle your debt situation.
Ideally you will make minimum payments on all your debts plus send as much money as you can to your smallest debt each month. Then what that smallest debt is paid off you take the amount you were paying toward that debt and apply it to the next smallest debt and so on. Yeah, mathematically it’s not the very best approach. But I agree with Dave Ramsey that, psychologically, that is the best approach to digging your way out of debt.
If your income is inadequate and you can’t make all your minimum credit card payments at least you know all your important expenses are paid for the month and you can create plans to increase your income rather than sit there and worry or get all anxious if you see Discover Card on your Caller ID.
Remember: YOU are in charge of your money. Always. No matter what your income. A prioritized spending plan will help you achieve that.
Topics: Budget, Credit Cards |