This is part one of a three-part series on managing your money.
Yes, the dreaded “B” word. Many people cringe at the very mention of a budget. Most people feel restricted and deprived when they try to live by one.
I like to think of a “budget” as a “spending plan”. Instead of telling me I can’t spend money, a spending plan helps me prioritize how I want to spend my money so that I can not only take care of my responsibilities, but also have the things that I want.
A budget, or spending plan, is a tool to help you plan, prioritize, and manage your income and expenses. It isn’t something that is set in stone, because your income and expenses have a tendency to fluctuate. Because of this, I recommend you review your plan often and update it whenever there is a change.
For many of us, that’s a monthly event. Unless you are on levelized billing for all of your expenses, they are going to fluctuate. And unless you are on social security or disability with no other source of income, your monthly income will fluctuate too (don’t forget, you probably have two “magic months” a year, and probably a tax refund too!).
Creating a Spending Plan
Write down your monthly take-home pay. Or if you’re out of work, your unemployment compensation. If you’re in sales – or work on commission – you may have to estimate, since your income may vary from month to month. List income you receive from any source, like a part-time job, a tax refund, gifts, unemployment, public assistance, dividends, and alimony or child support. Add the entries to determine your actual income for that month. Keep in mind, some of these amounts may fluctuate.
Right off the top, you are going to want to list your tithe. How much should you tithe? Well, tithe actually means a tenth. That’s what your tithe should be. You can always give an offering or sow seed money on top of that, but the first 10% of your income belongs to God.
List how much you deposit in savings each month from your take-home income, even if it’s only a small amount. This really shouldn’t be optional. You want to save some money every month. If you can’t save much, start with 1%.
If you are having trouble paying your bills, then see if there are some expenses you can eliminate–at least for a while. One of the first things I cut from my budget when I got into financial trouble was cable. I discovered I didn’t even miss it, so I still don’t have cable today!
List your fixed monthly expenses – the predictable, set amounts for the must-have items and services that you pay for each month – like rent or mortgage, car payment, and telephone, cable, or Internet access.
List your variable expenses – the amounts that change, as well as the expenses you pay weekly, monthly, quarterly, semi-annually, or every year – like groceries, clothing, haircuts, property taxes, auto and homeowners insurance, and gas and electric.
List estimates for once-in-a-while expenses – like birthday and wedding gifts, or holiday gifts and entertainment.
Total your fixed and variable expenses and divide by 12 to get a monthly estimate.
If after paying your bills and putting money in savings, you still have funds, congratulations! You are one of the few. I would recommend you put the extra money into your savings account for emergencies or as savings for long-term purchase goals.
If this month’s balance is negative, look for ways to cut back on the variable expenses.
Many people find this exercise unpleasant or even depressing. But, the fact is, until you control your money, it will control you. This is step one to financial freedom. And, with the holidays right around the corner, there is no better time to get a handle on your finances than today!