I am going to spill a little secret. I didn't always budget, but I should have. In fact when I think about how much money I HAD and don't know where it all went, it makes me ill!
My obsession with budgeting came in 2002. The financial institution I worked with sponsored a series of classes on all things related to money at a non-profit whose focus was on empowering women. I volunteered to teach a budgeting as a way to boost my resume and hopefully increase my chances of a promotion. It worked, but what I got out of that experience was even better!
The classes were well attended and I am nearly positive that I learned more than any of the women I was "teaching". I can imagine their surprise to be taking a budgeting class from a mid-twenty something. What did I know about money? They were partly right. Everything I learned about budgeting came from preparing to teach them how to budget! If I was going to teach something, I had better figure out how to live it. Personal experience is the best teacher, and it wasn't brain surgery, I just needed to learn how. From the day I volunteered to teach that class I have kept a budget in one form or another.
Prior to that moment I spent what I made and at the end of the month if I still wanted to buy something but my checking account said "no" I put it on my credit card. I justified it by saying it wasn't a big deal because I would have the money, I just didn't have the money right now. Savings? That wasn't even in the picture. Only people who have "extra" money save it. I didn't ever have any extra money, and you won't either if you spend like I just described.
There are a few easy things you need to know before you get started on your personal budget journey:
1. How much money do you make?
2. How much money are you obligated to spend?
3. How much money do you spend (or want to) on non-obligatory items?
4. How much money do you want to save?
How much money do you make? You can find that information on your payroll stubs. But don't stop there. Do you have any other sources of income? I bet you do. For example, I know that every Christmas my DrH employer gives him a $500 bonus as a gift. That is income, and we count everything. I know that twice a year I get 1 more paycheck than the other 10 months - my budget loves those months:-)
How much money are you obligated to spend? That is another easy one. Obligatory spending is rent, mortgage, insurance, car payments, utilities, credit card payments, student loan payments and anything that you are contractually obligated to pay - or to make it easy, anything that has a bill (in the mail or online) attached to it.
How much money do you spend (or want to) on non-obligatory items? This one is a bit trickier. If you have no idea how much money you spend on things like food, clothing, movies, a morning donut - you have some homework to do. I know that every December is Christmas, and that every August school starts, each with opportunities for expenses.
How much money do you want to save? I want to save a lot, duh. But do you really know how much you want to save. Is it a certain dollar amount, is there something you want to save for, what is it? Yes, every budget can find money to save.
I am going to leave you with a little object lesson:
Imagine for a moment that every day you walk to a river and pick up a pitcher of water to fill your reserve tank. Every day you (and/or your spouse) make this walk (work) to fetch this water (money) to put into your tank to take care of your family. Some of us have very long walks! Over and back, every day you are putting money into this tank.
Now imagine that the reserve tank you are pouring your water (money) into has leaks - lots of leaks.
What can you do? You can make more trips to the river (work) to fill the tank faster than it leaks out, or you can stop the leaks (spending).
A good budget identifies the leaks and plugs them so more of your dollars stay in the tank with you and your family and less falls to the ground, soaked up by the earth never to be seen again.
Next: A Close Look At Your Expenses