Where Do I Start?
Sitting here with my wife over the weekend, we started listing all the things we had to do over the coming years, and we realized we didn’t have a budget. We were looking at our accounts and found that we lived a life without making a plan for what we had that was coming up in our lives. Budgets, if you are single, are essential to get you thinking about the future. Maybe you want to invest, buy a new car, or whatever that expense is. If you are married with a family, this becomes even more apparent, unforeseen expenses medical or vehicle, life, or vacation plans for your family. Gone are the days of just roughening it and scraping by for a vacation. Some needs go beyond just your single life.
A budget is a tool where you track your incoming cash minus your expenses from your account. If your costs are higher than your credits (money), you are in a negative income. If you have more credits than you have expenses, then you have a surplus. Without writing down your incoming and outgoing cash flow, you cannot correctly account for your credits (cash). Without writing down a plan for your money, you cannot see if you have enough credits to save for your plan.
My Budgeting Experience
I never budgeted in my life and often found myself living paycheck to paycheck, typically living off any overdraft. Doing this, I only found that my pay was always gone when my salary hit my bank account. The next thing after this was living off of whatever credit I had. I usually didn’t have anything; I could do without since I was single for most of it. I never had a plan, never had a car for the longest time, so minimal expenses. I just wasted my money away needlessly.
Fast forward twenty years, and I was still living the same way. Of course, I had more money coming in, but I was still not saving. I was still living on credit and in this vicious cycle. Luckily for me, I met my wife, who was smarter with money than I was. When we first were together, I tried to buy a new car, let’s say the one I wanted no one would finance me for, so I got the cheapest one on the lot with the highest interest rate.
Why Budgeting is Important
Budgeting is crucial if you do not want to go through life living paycheck to paycheck, barely scraping by. You need to know what money you have coming in and what money you have going out. Without building a budget, you will never have an overview of your money. You will not ever be able to save anything, and you will never be able to pay off your bills and continue having compound interest on those credit cards eating a hole through your wallet.
Budgeting can show you if you are spending your money on wants or needs. Budgeting is different for everyone; some can afford to get the desires, some can only afford to get most of their “needs” and not even all of them. Without building a budget, you will stay in this vicious cycle of living paycheck to paycheck.
Now I am no professional. This is how I have done things to turn my situation around. Please, if you need help from a professional, seek it out. This article is only for information purposes on how I am working on my finances to get to a point where the situation is best for my family and me. Budgeting is not a one size fits all shoe. Again if you need professional help, please seek it.
Getting a snapshot.
When I was younger, the internet was starting, and budgeting software was not so prevalent. Today there are tons of apps, and most banks come with their version of the software to help you budget. What works still to this day and gives me the best overview is good old paper and pen.
I take in all my credits, my cash flow at the time it arrives. Then I minus out my expenses. Rent, utilities, car payments, car insurance, phone bills, and so on as they are due with payments. I then look at the bank’s online software and try and figure out an estimate on what I am spending on food, entertainment, movies, games, clothes, and those things. I try to separate the stuff on the side of the expense by “need” and “want.” Needs and Wants will come into play later on. After completing this for the month, I sit down, take stock in my overview of where my money has gone.
What to do now that I have a snapshot?
Now when you look back at the beginning of the story, I have a goal for my money, and hopefully, you do as well. Now that I have a snapshot of my money coming in and requirements for the cash going out. I look at the needs vs. wants and see what is leftover. If I still have a positive after the month, then this is the easy part, probably not where any of us are. You just put the extra money away, savings account, cash, or invest. There are many options to do with your extra cash, and we will not go into those here.
If I still do not see reaching my goals with the money left over, I have to do the hard thing, re-evaluate my wants, and see if those are really in line with what plans I have set. Sometimes these goals are upcoming necessities and not something I can give on. Then, I have to trim down on my wants in the budget to meet those goals. Sometimes if you have the ability, you may come up with an additional income stream to help you toward your goals. Although not everyone has these abilities, there are some we will cover later.
The way forward
After looking at my money’s ins and outs and seeing if I can make my goals, then the hard part comes in. To have the discipline to stay true to your goals. Like I mentioned for myself they needs are not flexible. The wants usually are flexible enough and looking at it honestly, and there is room to trim there. So we will sit down together as a family to talk about our finances. Then plan to cut our spending to save for a common goal. Talking about it and getting buy-in from everyone, if they are in the planning process, will help with accountability.
Communication about finances is difficult for many of us, myself included, but it must be done. With a partnership, family, spouse, everyone must have the same mutual understanding about the finances and work together to have a shared goal. I have learned this the hard way, and to be honest, still learning, but with all of us working together, we will achieve our goals, readjust if needed, and head in a direction that makes sense for us.
Are you looking for more information? Have a suggestion to help others? Join the discussion in our forum at www.theoryofmenpodcast.com/community. There is a place for all financial discussions to happen!