Do You Have A Budget?

budget

Whenever I hear this word it sends a chill through me. It pictures lot of work, complication, commitment and makes me feel like I am buried under a pile of paper.

But this is a wrong concept of a budget. We probably acquired it from work where everyone is complaining about budget time. It looks like an herculean task, which everyone dislikes doing but which needs to be done.

I personally hate unnecessary work. I dislike doing things just for the sake of doing it as a protocol.

So I need to do a budget? I have survived for years without one and I don’t see the necessity of doing one now.

Wrong!

Everyone needs a budget. Contrary to popular notion it is not even an option ( Sorry if I sound somewhat poetic).

A budget is a must the moment we have expenses.

False, a budget does not require a lot of work. Today with a computer and the proper software it is a breeze. The computer does most of the number crunching.

False, a budget is not complicated. It is actually very simple. Again with the right software it is very easy.

True, it requires commitment. You do need to do it at least once a week to input the expenses and to evaluate the outcome. That’s all.

False, there will be no paper to get buried under. The receipts are way too small.

What is a budget?

A budget is simply a planning of income and expenses for a specific amount of time, normally for a year.

It basically allows us to decide where our money should go and allows us to track our expenses.

It will inform us if we exceed our set limit so that we can rectify the situation before we get into debt.

A budget is like a map or better a GPS.

Before we can get anywhere we need first to know where we are exactly and where we want to go and how to get there.

Without a GPS or map it would be quite difficult to do that. We would be playing by the ear. We can get there or we can get lost. We have no idea if we are going in the right direction.

A GPS will tell us immediately when we make the wrong turn and what to do to get back on track. It will also tell us when we are going to get there. With a GPS we can get to destination in the fastest way.

So is it with a budget. We set the starting and the end points and we chose the routes to get there. We can pick the highways or the scenic routes but they all lead to the same destination. The important thing it will tell us when we get offtrack.

Advantages of a budget

Once we start doing a budget we would see the many positive results of it. Here are some of the advantages of a budget:

  • Know where our expenses are going
  • Reduce or eliminate excessive expenses
  • Family becomes more financially responsible
  • Plan special purchases
  • Remain on track financially
  • Achieve financial stability

It can be a real eye-opener the first time.When we are preparing a budget we will start to question our expenses and looking for ways to minimize or to eliminate them. We would be surprised to find out how much we waste on certain things. These things we will never know until we get the numbers and only by tracking them we can find out.

The whole family should be involved when doing the budget. Everyone becomes more aware where the money is going and what should be done to control it. The children learn to be more responsible financially. This will remain with them for life.

The budget allows us to set and achieve goals. If we budget for a LCD TV at the end of the year then the chance is high that we would be able to afford it by the year end if we keep to our budget. There will be no guilty conscience, there is no need to get a bank loan or to have to pay back the credit card monthly because the money has simply been budgeted. And when the whole family sets a goal it also becomes easier to achieve.

Perhaps the most important thing is to know we are in control of the situation and to be able to achieve financial stability in our life.

How to budget

Budgetting is not complicated. Like the GPS we need to set the start point and the end point. The start point in this case is our income and the end point is our expenses allocation. Once that is done, we start putting in the mileage by inputing our daily expenses. Our budget will tell us if we are on track or off track.

Estimate Income

First we need to estimate our income as accurately as possible. Those with fixed income will have no problem. Those with variable income should refer to the past years to estimate their income. It is better to be more conservative to be on the safe side. We can always change it along the way if we see it is inaccurate.

Allocate Expenses

Then we allocate our expenses to make them match our income. Some of the expenses are fixed while others are variable.

Here’s a list of 21 expense items. You can add, remove and modify it according to your needs.

  1. Rent / Mortgage
  2. Property Tax
  3. Electricity
  4. Water
  5. Gas
  6. Telephones inc. Cellphones
  7. TV
  8. Internet
  9. Vehicle expenses (Insurance, repair..)
  10. Gasoline
  11. Groceries
  12. Clothes
  13. Health (Hospital, medication. dental ..)
  14. House (Repair, insurance …)
  15. Life Insurance
  16. Entertainment (Eating out, movies, holidays …)
  17. Personal (Gardening, Photography …)
  18. Banking
  19. Investment
  20. Saving
  21. Gifts and Donation

All expenses will be allocated in one of those items. If you want it to be more detailed we simply break it into more pieces.

For example, I want to know how much I spend eating out. So I would add another item, Eating Out and Entertainment will not include it anymore.

If we want to save for a new TV, we can add an item, called TV Saving.

Then we start “budgetting”, i.e deciding how much we are planning to spend on each item for the year. The total expenses should not exceed the income.

Whenever we buy something we need to keep the receipts. Everyday or once a week we key in the receipt amount under one of the expense items. That’s all.

Tracking Results

Everytime we input the expenses we can also view the results. It is important to keep track of how they are going especially at the end of the month.

The results might fluctuate but if there is a consistent trend, it means it is definitely going in a certain direction, either good or bad.

If it is bad, i.e we are overspending we need to try to rectify the shot. The earlier we do it the easier it is. We should not make the mistake of evaluating the results only at the end of the year.

The whole purpose of a budget is to guide us in where we want to go at the end of the year, not recording expenses.

If we succeed in doing that, then the budget was successful. We got to our destination.

Budget Software

There are many softwares for budgetting. Some you have to pay, some are free.

Some softwares are very comprehensive and can be scary when used for the first time. We believe a budget software should be very simple and user friendly. All we need is to be able to keep track of our expenses.

We find the iBudget to be very good. It is based on Excel spreadsheet.

You can download it for FREE at DEALS.

Jean W