It’s Called Currency

Welcome to the first of a series of entries on budgeting. This series will look at the components of a budget in order to help you keep that resolution you made about actually budgeting your money this year.

When most folks first decide that they need to budget, it’s usually because they’re living beyond their means or have not been saving anything for their future. They’re normally at some sort of crisis point, if not financially, then certainly emotionally. They have had all kinds of self-defeating negative talk running around in their heads for days or weeks or even months. They beat themselves up for frittering away their money as they look down the barrel of a milestone in their lives: decade birthday (30, 40, 50), new baby on the way, child entering high school, job change, etc. There’s no money (or at least not enough) for college, for retirement, or even for a long-overdue vacation. “How,” they ask, “did this happen?!”

Once moving past the poor-pitiful-me state of shock and dismay, most folks will vow to change, to do better, to fix what they were doing wrong. Those people decide that a budget will fix the problem. So, if you’re one of those people, I need you to read carefully: the budget will not fix you. The budget is just a tool to track money, just like a wallet is a tool for containing money. Your wallet cannot stop you from spending money that’s needed elsewhere, and neither will having a budget. What a budget can do for you is help you to stop yourself.

That’s the first thing that you need to realize when budgeting. Just writing everything down in a budget (or entering it into a spreadsheet or some fancy financial management software) will not make you stick to it. You’re going to have to hold your own feet to the fire to make sure you stick to your budget. If you have a spouse, then you’ll both need to be responsible for making sure you each stick to the budget. You behavior, your spending choices, have to stay in line with the spending outline, the cashflow plan, that is your budget.

For the pen and paper—or screen and keyboard—part of the budgeting process, the best place to start is your income. After all, if you don’t know what’s coming in, how will you know if it is enough to cover what must go out? You need to include any salaries, wages, tips, alimony, child support, etc. when looking at what’s coming in. You need to write each source of funds for the month down on its own line on a sheet of paper.

If you receive regular income from a particular source multiple times each month, then write it down multiple times (like the paycheck that comes every other week…do you know which months will have extra pay and what you need to do with that money?). Is there some other income that’s less regular but possible during certain times? Write it all down.

Total up these income sources and spend a few minutes congratulating yourself for
a) getting one step closer to having an actual budget, and
b) having the income sources that you do.

Next, do a little dreaming about income you’d like to have. What would you want your salary to be if you could get a raise or the proper financial gain for the work you do? What other income sources do you want to have? Perhaps a sizable income from a rental business or second job? Residuals from a book or CD? Dream about where you’d like to be financially. This will give you a target to aim for as you set your saving and spending targets in the next few days.

Tags: budgeting, cashflow management, education // 3 Comments »