Most people failed to achieve their set goals last year, not because they did not plan but because their plan was not watertight. This means planning without a budget and in other cases, failure to follow the budget.
As you therefore set your goals this year, it’s critical that you plan a budget that measures your income, guides your spending and directs your savings and investment.
Keith Rawlinson, volunteer budget counsellor, said in order to get ahead, you’ve got to have a plan. “There is absolutely no way that I know of that you can get ahead, get out of debt and become, and stay, wealthy without a plan.”
In the financial world, that plan is called a budget. Yes, I know, everyone hates the word budget. It sounds like a lot of work. Well guess what, it is a lot of work! Getting out of debt is a lot of work. Becoming wealthy is a lot of work. If it were easy, everyone would be wealthy! Most people today are in debt and broke. If you don’t want to be like them, you have to be willing to put in the effort that they aren’t. You have to be willing to put in the work it is going to take to create a budget and then follow it.
If you are not willing to put in the effort to devise a plan (budget), then you will be in debt and broke like most people. The choice, as always, is yours. But here’s the good news: the work it takes to devise a budget is the hardest on the first budget you create. If you ever have to rework your budget in the future, or create a totally new budget, it is much, much easier since you’ve already done one. So, no matter how much trouble creating your budget seems at first, remember that it gets easier with time.
Why you need a budget
Without a budget, you have no way of knowing where you are financially. Do you know how much you spent on groceries last month? Do you have the receipts so you can add it up and find out? Most people don’t. And if you do know how much you spent on groceries last month, was it too much? Was it just right?
Could you have spent more without causing future financial difficulty? Without a budget, you have no way of knowing. This same concept also applies to eating out, going on vacations, clothing, transportation, housing, etc. If you are lucky, you might have a pretty good idea of where you are in one or two of these categories, but there’s no way, without a budget, that you can know where you are in all of them. That is why you need a budget.
A budget allows us to know how much we have spent, and how much more we can or cannot spend. It tells us where our money has gone. It makes sure we have money to meet future bills and expenses. It shows us where we can free up money to pay off debt and then save to become wealthy. I don’t know of any body who became wealthy, and stayed that way, without a plan. I do know of many people who became broke and stayed that way without a plan. Want to be out of debt and wealthy? Then you need a budget.
This is very important
Not every budget category will apply to everyone. There may be spending categories that don’t apply to your situation, or there may be categories you need which are not included. Just eliminate categories you don’t need, add categories you do need, and add/subtract from the various categories until your budget balances.
Regardless of how you calculate your budget, it is critical that you not have zero in the saving category. There is no way a budget can work if you are saving nothing on a regular basis. If you have no savings, any unexpected expense that comes along will make it impossible for your budget to work.
Even if it is not a large amount at this time, make sure that the most you can manage is going into savings each and every pay. Saving is the tool you will need in order to get rid of debt and start building wealth. Keep in mind that, however you create your budget (spending plan), it is just a starting point and will need to be adjusted and tweaked as you go along. It is not only possible, but likely, that your budget will not work out very well for the first few months. Just stay with it, re-balance and adjust your budget as needed, and after a few months it will start to work.
Also, especially if you are just getting started, and/or things are very tight, do not worry about putting any money into the ‘Investment’ category. As long as you are putting something into savings every month, the ‘Investment’ category can be zero.
So what now?
Once you have your budget balanced, and have at least a small amount going into the ‘savings’ category, the amounts for each category represent your balanced budget. If you spend no more in each of the categories than what you have written down, you will not be going any deeper into debt. To keep track of your spending, you can use a small notebook to write down what you spend every month and keep a running total to make sure you don’t go over the amount you’ve budgeted for the various categories.
In your notebook, have a page for each category and make sure that as you spend money, you write it down on the page for the category that money would come out of. I know that following all of the steps needed to create a budget can be tedious and confusing for a lot of people. If you truly are not able to figure this out for yourself, there is help available at no charge. Just go to the Crown Financial website and click on budget coaching.