Benjamin Franklin was right on the money when he said, “Fail to plan and you are planning to fail.” That pronouncement from one of the Founding Fathers of the United States is as relevant today as it was 250 years ago, especially when it comes to budgeting.
Yet, too many families fail to follow Franklin’s advice. It’s estimated that nearly two of every three American households don’t have a budget. And for many families that spells trouble. They spend without ever knowing what they can afford to buy. A budget will enable you to take action. It will help you identify where your money is going so you can make informed decisions, like cutting back on the amount you’re spending on dining out.
Some people are reluctant to budget because their philosophy is “out of sight, out of mind.” They don’t even want to think about their spending because it might mean giving up some of the things they enjoy, like going out to a movie or having a fancy coffee. We’re not proposing that anyone give up all their minor splurges. That would take the fun out of life. But either is digging yourself a financial hole that gets deeper every month and keeps you up at night.
Now that you’re convinced that a budget is a good idea—and it is—there’s no time like the present to get started.
Begin by figuring out how much money you have coming in each month, that is, your income. If the amount you make is pretty much the same every pay period, this should be straightforward. However, some people work on commission, or a base salary plus commission. Those in that category need to factor that into their budget.
Next, list recurring expenses, such as utilities, car payment, mortgage and the money you save every month. Another category is those expenses that likely change month to month. They include things like clothing, entertainment and seasonal expenses like gifts for holidays.
The next step is to add up your expenses and deduct the total from your income. In the best case, the number is positive or at the very least zero. If the sum is negative, you have some work to do. Start by looking at where you can cut back on your variable expenses. You may even want to explore ways to boost your income, like getting a part-time job.
Next you’ll want to drill down on expenses by categorizing them. Record how much you’re spending on food, insurance, gas, electric, phone and others. There’s some good software for this, or you can do it by hand on a ledger.
After a few months, you’ll have a good handle on where your money is going and what adjustments are necessary to bring expenses in line with income. If you find you’re exceeding spending in some areas you’ll probably have to cut back in others, particularly those where you have some flexibility.
A budget is a blueprint that will help assure you don’t live beyond your means. If you don’t have one, there’s no time like the present to start working on one.