Real Life Budgeting
Probably everybody knows that you should have a budget and many people dutifully on December 31st create a budget for the New Year as part of their New Year’s resolutions. Yet in many cases the budget is history by January 31st.
For a budget to be successful, it must be realistic. One way to get started with developing a realistic budget is to keep track of all expenses for at least a month. Three months would be better. This includes keeping track of all cash spent as well as the use of credit cards and checks. It is no good to keep track only of bank transactions when the use of cash is the hole in the bucket through which all the water leaks.
There are some bills that change in amount by season. For example, heating costs are lower in the summer and higher in the winter. Try to figure out an annual spending amount for your heat bill. Divide that by twelve and that is the real cost of your heating every month. If you can do this type of budgeting for yourself, you will be creating your own budget plan and you won’t be paying ahead on your gas bill as you do when you use the gas company’s budget plan. You might as well benefit from the interest on the money as allow the gas company to do so.
Another aspect people often forget in creating a budget is the once- or twice-a-year expenditure such as real estate taxes and automobile insurance. If you create a budget that spends all your typical paycheck without taking these into account, your budget won’t work. To take these into account, take the annual amount and divide by twelve. Put aside that amount of money each month.
Sometimes when people put together budgets, they decide they will immediately and drastically change their spending habits. In some instances there is no choice but to do so, such as when a job is lost. In most cases, it is wiser to leave some discretionary money available. We often go shopping for a variety of psychological stresses rather than because we really need something. When the budget is unnecessarily draconian, you run the risk of responding to stress by throwing the budget out the window and splurging.
The final trap is counting chickens before they hatch. For example, if you get paid twice a month but your hours are variable, don’t count on the second paycheck as the sole source for the next month’s rent. If you get sick or for some reason don’t get enough hours, you may not have enough money in the check for rent. While groceries can be stretched out to last longer, rent comes due when it is due and the consequences for not paying it are serious.
If you do an honest accounting for your money and find there is more outgo than income, then it is time to reassess. Where can you make changes? Does someone in the family need to get an extra job to tide you over? While it is painful, it is better to face facts before they happen than after you have dealt with their consequences.
