Last week, we talked about the importance of creating a budget. However, that can be really overwhelming if you don't know what you're bringing in and what you're spending! The first step toward sticking with a budget needs to be tracking your income and output.
You can start as simply as writing down your expenses in a spiral notebook. Just make a page for each category of your soon-to-be budget, including a page for your income. At this point, don't worry about trying to set limits on your spending. Proceed with "business as usual" for about a month, just to see what your habits are. Write down everything that you make and that you spend. Don't just write amounts from your receipts, but try to be a little more detailed. Later, when you are examining your budget, this will be helpful. Are you spending a lot fast food, or impulse buys at the grocery store? You will be surprised how fast purchases like that add up.
Some categories you could include are: out to eat, grocery, gas, bills, debt payments, entertainment, etc. If you spend some money that doesn't fit into one of the categories you made at the beginning, that is a clue to you that you may need to create a new page. For example, my husband's hair is pretty high-maintenance. As silly as it might seem, I knew we needed to make a separate category of our budget for this expense, so that it wasn't a surprise every other month.
At the end of a month, you should have a good overview of how you spend money. You should also have a good idea of whether or not you are spending less than you make, or if you need to make some drastic changes!
Now look through your pages carefully. What percentage of your income went toward gas? Toward debt? Toward clothes shopping? Look at where you could afford to decrease your spending. If you commute, decreasing your gas category may not be practical. But could you skip the fast food breakfast on the way to work? You'll save time, money, and calories if you can make something at home. How about your grocery shopping? Is it excessive, or are you already pinching pennies in that area?
The first time I tracked our money, I couldn't believe how much the spending was outweighing savings and debt payoff. We could immediately adjust certain areas to reflect more balance. There were also categories that I knew we could not decrease, and may even benefit from increasing.
If you can look at your spending, and honestly say there is no area where you can cut back, you will need to look at increasing your income in some way. You may have to get creative. Dave Ramsey talks a lot about this, and I love the ideas he throws out there. If you need encouragement to get radical about increasing your income, and decreasing your spending, I would really suggest visiting his website.
However, I believe that unless you have already taken drastic steps, and have already created a nice, tight budget, you probably have somewhere in your spending that you can pare down. I know that even now, while working on being accountable and maintaining a budget, I can still cut back. I can still stretch myself to be more creative, more frugal, and more accountable to my budget.
The most important things that I hope you take away from this post are to WRITE IT ALL DOWN, and ASSESS YOUR SPENDING. Until you really evaluate where you're at, you can't go anywhere. After this vital step, you will be ready to set your budget! Don't be discouraged if you don't "find" wads of money that you didn't realize you had. Honestly, only the people that are making a lot of money, and don't have to worry about how much they have to spend are going to find wads of money. In our current economy, there are not many people who don't have to think about limits on their cash flow. Even the wealthy incur debt, and I believe everyone is called to be a good steward of finances. It doesn't matter if you don't have to budget; you should. That's how you stay wealthy! Don't be fooled- people live at or above their means. It takes just as much discipline and hard work to be on a budget when you are making $100,00 a year as it does when you are making $40,000. The percentages of income spent in people's "categories" are probably pretty similar, even if the dollar amount is larger. Does that make sense? There are millionaires in debt. So don't worry if you don't make a lot. You can still be a good steward of what you do have, and you can still find some extra cash in your budget that you can re- prioritize.
So- what are you spending? Is it more or less than what you make? Are you doing great in some areas, but a little shabby in others? Do you have some areas that you simply need to plan for so that you can afford to put your money toward what you love or want to have? I'd love to hear your comments, and see how you're doing!
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