Design A Budget Which Works For You

Copyright: akkamulator

Not too long ago, I went shopping at a retail home goods store with a good friend. When we approached the checkstand, my friend experienced a bit of sticker shock, because she kept adding things to her cart and hadn’t kept track of how much she was spending. When I suggested that she might want to review what she had in her cart and perhaps pare down, she responded with, “Well, it will somehow work out. I still have some room on my credit card.” We kept chatting as the sales clerk rang up my friend’s items, and she continued with, “I never know how much I have in my checking account, and I don’t keep a budget, so I always hope and pray that I make it each month.” By this time I was cringing at what my friend was saying, and I also became very concerned for her financial health.

If you are like my friend and choose to throw caution to the wind by refusing to follow a structured budget, you have signed up for a rocky financial future. You may argue that you have the same fixed expenses each month, such as mortgage/rent, cell phone, and your car payment, and that you somehow always know approximately how much you spend on groceries and fuel for your car, but if I challenged you and asked you to itemize those expenses, I would bet that there is some overspending occurring. If you are also forgetting about discretionary expenses like a regular Starbuck’s habit, or even worse, you are neglecting retirement savings or contributions to an emergency fund, then you are skating on very thin ice indeed.

You might be thinking, “But I don’t know how to make a budget!” The whole idea of sitting down and creating a budget may sound daunting, but all it entails is writing down all of your income sources for each month, then creating a separate list of all of your monthly expenses. Once you have the basic framework of your regular expenses, you can add in your occasional expenses, such as personal care items (haircuts, etc.), auto insurance, upcoming vacations, etc. so that you are aware of the need to cover them. If you really dig deep, you will probably encounter hidden expenditures you weren’t completely aware of, such as streaming movie rentals, outdoor dining, or even online subscriptions which you might have forgotten about.

Once you have determined how much money is coming in each month, and how much money must be spent on fixed and variable expenses, you can see which expenses are unnecessary or frivolous, and you can also determine what other financial goals for which you can earmark part of your income. Examples of good financial goals are the following:

  • Paying off credit card debt (make sure that you add your monthly payments into your monthly budget!)
  • Vacation plans
  • Retirement planning
  • Adding to an emergency fund

Once your budget is completed, make sure to refer to it at least once a month, and as you reach certain financial goals (especially paying off credit card debt), you can make adjustments to your budget. Funds which were previously being funneled in one direction can be redirected to another goal, such as cushioning your retirement accounts or emergency fund. I can’t stress enough how important it is to focus on eliminating any credit card debt, because nothing erodes financial security more than this type of debt. Think about it: if you are paying 19.9% APR on a credit card balance of $2,000, that means that the credit card company is making an extra $400 in a year (this is a very rough estimate, since you would be making payments each month on that original balance). The other problem is that most people will add to a credit card balance, which pushes you into deeper debt. With credit card debt, it’s like taking one step forward and two steps back, so if you have credit card debt, HELOC’s, or another high interest debt, your primary focus should always be on aggressively paying those balances down. Once you are free from credit card debt, I strongly recommend that you curtail usage of any credit cards and use cash or a debit card instead.

When you stick to your budget, you may be surprised by how much it will improve your financial picture. A budget establishes a framework which enables you to move towards financial goals you might never have thought you could ever reach. Another great thing about an effective budget is that it doesn’t have to be static, so as your goals change and you reach certain markers, you can make adjustments to further fortify your financial position.

Bleeding Money

flying money

Do you ever find yourself in a vicious cycle in which any influx of money leaves your hands almost immediately because a bunch of bills come at once, or unexpected expenses pile up? I have been going through a pretty consistent “money bleed” for the last few weeks, and it is extremely frustrating because I just cannot catch up. I take one step forward, only to take two steps back.It This has been happening when extra funds have come in, almost like clockwork. It’s just random and weird and it needs to end!

I am sure many of you can relate. Times are tough, and people continue to struggle to make ends meet. Salaries are not rising sufficiently to accommodate the rise of inflation, soaring credit card APR’s, and the mess that is the Obama Care Act. Sadly, many people are slowly trying to dig themselves out of financial holes, at times losing their ground and falling back. It’s enough to make one give up.

I have literally received payment in the mail for jobs I have completed, only to find 1,2 or more bills in the same stack of mail which equal or exceed the amount of the payment I received. Money in…money out! I have taken on more work to try to absorb expenses, only to find that such a tactic doesn’t work. It’s almost like I am meant to always scramble, that perhaps for the time being, that this is my karmic lesson. The strange thing is that I am NOT a spender, and I pretty much detest shopping. So it doesn’t make sense that the bottom always seems to drop out on me. I am a planner, a saver, and never gamble, qualities which I suppose have kept me afloat during especially rough times when others would have sunk.

The goal is to be one step ahead. I am determined to accomplish this, SOON!