An old friend mine use to say, “money is like gas it expands to fill the space”. So you better figure out that space beforehand.
During his life where he lost income, it always seemed to work and at times when income increased it always got spent.
Over the years because of a unique position I was in, I had the opportunity to look at a lot of people’s finances and one thing I realized is that it doesn’t seem to matter how much money you make. I would see the family making $20-30,000/yr doing just fine and then the family making $200-300,000/yr getting behind each month OR the reverse, with the family making $20-30,000/yr getting behind each month and then the family making $200-300,000/yr doing just fine, along with every income level in between.
So what this told me is that it doesn’t matter what you make, it matters more how you manage what you make.
There’s an old saying, “If you fail to plan, you plan to fail”. A budget is a plan, so let’s learn how.
First you need to establish where you are by coming up with an “actual” spending list and then make a “planned” budget or where you want to be. So come up with what you’re currently spending and then right next to it, list what your budget goals are or the budget you want to follow.
Some points to remember:
Every cent should be allocated! Your budget should always balance. If not, the extra will disappear or “expand to fill its space”.
Always have a “spending cash” item or “misc. money” item, where you can spend the money on anything you want and it’s not accountable to any other budget item. If you don’t have this item on your list, most people will spend it anyways, but if you do most will stick with the amount allocated. For example, say you only have an extra $5 every month, but you don’t budget it and so when you’re out you stop and get a meal which cost you $10 and then your spouse spends another $20 on something they wanted and now you’re over budget by $25.
Sound familiar? Now, if you knew you only had $5 most people have a tendency to only spend $5 or darn close. Personally, there’s been times in my life when the budget only allowed $5 and so my wife got $2.50 and I got the other half. She would go garage selling with her half, so she could get her shopping fix and I would buy off the dollar menu. But there’s also been times when the budget allowed for hundreds of dollars for spending cash.
The point is that most will blow money anyways, so as not be surprised at the end of the month, know what you’re going to spend beforehand.
Budget for a specific period of time (such as weekly or monthly) according to your pay schedule. If income and expenses vary from week to week or month to month, prepare a new budget each and every pay period, until you can become stable.
Finally “If you fail to plan, you plan to fail”.