Sitting down to write your first family budget can feel overwhelming. Like you’re attacking a wall of expenses.
Facing a wild mix and match pile of costs like that, and feeling sure that you haven’t even thought of all of them, can make most normal people stop, drop their pencil, and walk away. Let me tell you, I have been there and I understand. You have my sympathy.
As a financial coach, though, I’m not going to let it end there. You have a responsibility to manage your money, and ignoring that is just going to make things worse. Walking away is not a realistic option. You need to scale that wall, climb that pile, and overcome your fears and frustrations about budgeting.
Like any problem that seems overwhelming, the answer is breaking it up into smaller steps.
Step 1: Determine Your Income. For most of the
five people reading this, that’ll be easy. A fixed, regular income is still pretty common. How many paychecks are you going to receive in the next month? Total those up, write down the number, and label it “INCOME.” Done.
If you’re one of the lucky few who receives an irregular income, this seems like more of a challenge, but you can’t skip this step. The best general advice I have is to take your worst average month’s income and use that as a baseline to budget from. If more comes in, excellent! You can put it to use in one of the next steps.
We can’t spend more than we have coming in, and we need to put every dollar to work, starting with…
Step 2: Pay for Your Necessities. Your first priority is to take care of those things that keep your household functioning. I’ve covered this ground before, in explicit detail, so I won’t spend a lot more time on it. The big point of this step, though, is to make sure that you have enough income to cover the basics, and see for yourself how much is left over once those basics are covered. In most cases, that margin way bigger than you’d think.
Step 3: List Your Goals. What is it that you want to do with your money? What’s on the top of your list? Do you want to pay off debts? Save up a cushion for emergencies? Invest for the future? Build up a college fund? Go on a huge vacation? I know the order that I’d advise you to do them in, but ultimately you get to make the decision. So, pick one.
You’ll be using the margin you have from Step 2 to fund this goal (including any unexpected irregular income), but you have one more step before you’re ready to go…
Step 4: Say “No” Everywhere You Can. That big goal, and all of those necessities, probably didn’t account for every expense in that massive wall from before. For everything that’s left, you have to ask yourself this question: “This month, is this thing more important than reaching my goal?” For a lot of items, the answer will be a frustrating “Yes.” For example, you might find that the pets get a little bitey if you don’t feed them often enough. Not to mention that your children do need new clothes now and then. And it’s really hard to say “No” to debt payments.
Still, there will be a bunch of things you can say “No” to. Like Cable TV, or eating out. Plus, it gives you the chance to take a hard look at how much you’re spending on those “Yes” items. Maybe your kid doesn’t need new school clothes from the mall. Who knows? You might even find a few ways to cut back on your necessities.
By now, you should have a budget that works for the upcoming month. Finally, you get to…
Step 5: Do It Again Next Month. There is no such thing as the perfect budget. Every month is different, and every month’s budget should reflect that. Each time you sit down with a pencil and write it out, you give yourself the opportunity to learn from mistakes and develop good spending habits.
This isn’t a one time deal. It’s a lifetime deal.
What do you think? Did I skip a step? Let me know in the comments below!
If you are one of the
five regular readers of this blog, you’re well aware that I have no love of debt. To me, there’s almost no good reason to go into debt, and a lot of good reasons to pay it off as quickly as possible. However, I try to keep an open mind. So, I thought it would be a good mental exercise to try to come up with some valid reasons to stay in debt. Here’s what I came up with.
#1. You have severe pulpuslacerataphobia.
That’s the fear of getting paper cuts, which is sure to happen while you sort through and organize all of those statements and bills you’ve piled up. Getting everything organized is usually the first step when you’re trying to get out of debt, because you have to have an accurate picture of your financial situation before you can move forward. While the internet and online banking are making mail and the paper it’s printed on less and less common, it’s not totally gone yet. Serious pulpuslacerataphobics might consider investing in good pair of gloves if they’re trying to get their money under control…or they can just stay in debt.
#2. The thought of divorce excites you.
Study after study shows that the top indicator that a marriage will end in divorce is the number of money fights a couple has per month. Debt adds a lot of tension to an already difficult situation. If one partner is desperately trying to pay off outstanding loans, while the other is constantly opening new ones, they’re doomed. Getting a couple to communicate about their money goals, make compromises, put all the numbers on paper, agree to it all, and not go off and do whatever-the-hell-they’d-like afterwards, is so important for a healthy marriage. They all should have that discussion before they head down the aisle…or they can just roll the dice and hope for an exciting outcome.
#3. You love your stuff.
Once you get going on paying off your debts, everything you own gets looked at through a very difficult filter. Namely, “Do I want that thing more than I want to be out of debt?” How much do you love that big and beautiful flat-screen television? Or that vintage automobile that you’re sinking hundreds of dollars every month into? Sure, you could always buy more stuff later, with cash, after you’ve paid off all of your debts, but that’s not the point. You already have this stuff, it’s yours, and you love it.
#4. You don’t want to change your life.
I can remember what it was like before we started fighting our way out of the financial hole we dug, and it was pretty easy on me. I’d go to work, bring home a steady income, and my wife would take care of making sure the bills were paid. It is shocking how different my perspective on life is today than it was four years ago. It’s way more difficult, but the future looks so much better in so many ways. Still, there’s a shrinking, immature part of me that misses what used to be. Maybe that part is bigger for you?
Perhaps that wasn’t the most open-minded list. How about you? Can you think of a good reason to keep your debt?