I make little budget PSAs all the time. And it’s not like you don’t hear about budgeting all the time anyway. This is something that the financially literate drone on about all the time. But it’s no less true simply because it’s a cliche. Those who really get into budgeting understand that this is how you start to really take control of your finances. A detailed budget enables you to truly scrutinize the coming and going of your money. Without it, you’ll likely waste thousands of dollars a year, even if you don’t feel like you have that much money to spare. Most of us do, even if you don’t make a lot of money. Budgets illuminate this reality and let you use every penny for more effective purposes. I’ve been a budget believer for a long time. You could use budgeting software, but I prefer a regular old excel spreadsheet. Here are elements that every budget should have.
- A Record of Your Income, Plus any Extra/Deficiency. Not everybody is a salaried employee. Salaries are steady, and this makes them easy to budget with. You always know how much you’ll have and when. But these folks are in the minority, especially among the people who really need to be budgeting. For the rest of us, money comes in at unpredictable rates, due to inconsistent hours worked and other factors. Try very hard to get your weekly pay to a baseline amount that you never go under, then make that the basis of your monthly budget. But since this won’t be a perfect representation of your financial reality, have a plan for the times when you have extra. Don’t just blow extra money. I like to do it like this. When I make extra money, 50% of it goes straight into savings. 25% is invested long term. 25% goes into vacation savings. If you ever have a month where you happen to make less than your baseline, use money you saved in the better times to supplement it and meet your budget requirements.
- A Record of Your Investments. Your budget documentation is a good place to keep record of how your investments are doing. Look at how much you’ve put in and how it has grown. With complicated daily investments like CMC markets and the like, I keep track of how much of my portfolio is allocated in this manner, and how individual investments turn out. In you don’t keep track of small investments made quickly, it’s very easy to lose track of where you money is and how much you actually have.
- A Record of Your Goals. Don’t simply budget for the daily things, bills and whatnot. Make weekly savings goals for things like a new car, downpayment on a house, vacation, education, and other goals. Save a little at a time. After awhile, you’ll be surprised how much you have, and you won’t have to break into any other savings (or worse…credit) to pay for what you need.
There are other facets of a good budget, but even the simplest will involve these. Also use your budget to help you schedule the killing off of your debt. That’s a topic for another post, but I thought I’d go ahead and mention it here. Now that you’ve paid your taxes, make a real budget a reality, and see how much better your life is come tax time next year.