Who needs a budget?’ I used to think this, so I’m guessing there’s lots of people out there who think the same. I mean, you’re young, you’re working, you like to go out and have fun and you’re doing OK. So who needs to worry about budgeting, savings plans and a secure financial future? There’s plenty of time to get into that later on, right?
Well, actually, no! That’s not a good line of thinking at all, as I discovered the hard way. I managed to rack up over $20,000 of credit card and personal debt by the time I was 23 and this affected my ability to keeo my first house. How I wish I had followed all the advice I happily ignored when I finished college and started work.
The thing is, not having a budget is rather like not having a map when you set out on a road trip. You know where you want to end up but don’t know exactly how to get there; you miss all the best sights and waste a lot of time and money. A budget tells you how much you can spend in the different areas of your life, what you can really afford to buy, and where you are wasting your hard-earned dollars while helping you get you to where you want to be.
Financial experts claim that the rise in personal bankruptcies can be clearly attributed to so many people living without a budget. We live in a consumer-driven society and too many people impulse-buy, often things they don’t really need. How often do you hear people say “I don’t know where my money goes”? If they had a budget, they would know the answer to this, right down to the last cent.
Avoiding The Issue
So, why do we avoid the whole budget issue? If we know it’s in our best interest to have a budget, why are we generally so reluctant to create one? There are several reasons, according to a recent survey. Many people just don’t see that they need a budget; others think it’s all too hard or don’t know how to go about it; some don’t want to restrict their spending while many think it doesn’t apply to them because they are young and just starting out.
I used several of these excuses over the years. I created budgets; several times, in fact. I sort of understood that it was an important thing to do but I could never get them to balance! I’d spend hours listing my income and bills and spending and then when I added everything up, there was never enough money to cover my expenditure. I reached the conclusion that budgets weren’t for me and continued spending money I didn’t have, courtesy of several credit card companies. What I didn’t realize was that my non-balancing budgets meant that I was spending more than I earned and had to find ways to curb my spending if I was to avoid financial disaster.
Spending More Than You Earn
You’ve probably also heard that creating your own personal budget is an essential step to living within your means. But what does that really mean? Basically, it means you cannot spend more than you earn; the total amount of money that comes out of your bank account must be less than the amount that goes in.
Unfortunately, easy access to credit or same day loans for everyone has made this a difficult concept. You’re certainly not alone if you are wondering how you are going to get out from under a mountain of personal debt. If this sounds like you, it’s time to take action before things get worse. Making change is never easy but really, once you make the decision to become more financially responsible, it’s not that hard. It takes some discipline and commitment, but come on, if I can do it, so can you! Here are the steps:
Set a Budget
A personal budget is the most important step in getting your finances under control but you must be prepared to follow up on what you discover when you first draw one up. This doesn’t have to be a difficult exercise either – simply list your income on one page and all your expenses, bills, repayments and spending on another. It’s really important to leave nothing out of your list of expenditure; don’t shoot yourself in the foot by cheating at this early stage in the process. Be prepared to get a shock at how much you actually spend in some areas; these will probably be where you’ll be able to cut spending easily.
Find Where You Are Spending Too Much
When you’ve added up all your expenditure, subtract the total from your income total. Do you have a negative figure? That means you are living beyond your means and have to find ways to reduce spending. Some expenses can’t be changed; these are called fixed expenses and include things like loan and debt repayments, utility bills and insurances. Fall behind in these and you’re really in trouble. It’s the variable expenses you need to reduce or eliminate; it’s all about managing your available funds better. This is easier if you shave smaller amounts off several areas; this causes less pain than making big drops in spending in one area. You’re more likely to stick to a budget that has small changes.
Psychologists tell us that we can be happier if we stop cramming our lives with all the stuff we buy. Your life will certainly be less stressful when you have your finances under control by having a workable personal budget.
So, do you have a budget? What got you started and what adjustments did you have to make?