Thursday, January 29, 2015

Start with a Budget

Living Large by whole-heartedly enjoying the things in life that are most important to me happens most naturally when I practice the other piece of it, which is living within my means.  Simply stated, it’s spending only what I make or less.  It sounds simple, but it’s actually quite complex when you consider that the norms in our society include borrowing liberally to leverage our purchase power, creating financial peer pressure to spend more than we make.  Creating and sticking to a balanced budget each year, though, can not only keep your financial house in order, it can also help you choose your life’s passion. 

Start with a Budget - ParentUnplugged - Stacy Snyder
As a kid and teenager, it was easy to budget as I made so little money at my part-time jobs that I could only spend so much on clothes and outings before my wallet or bank account was empty.  When you were out of money, you simply couldn’t buy anything.  Those years were fun and simple.  Turning 18 threw a wrench into the plan for me.  Credit card company promotional tables lined the commons that first week of college with their reps taunting, “Buy it today and pay it off later,” and “Establish your own credit history,” as they handed me my free dorm-room-shower-caddy for opening up a revolving credit account at 21% interest.  It went downhill from there and I loaded up on debt for six years. 

Consumer Credit Counseling showed me, among many other debt-reduction ideas, how to create my first written budget in my early 20’s.  The advisor used a sheet of paper and a pencil, I later transferred it to an excel spreadsheet, and now I use Quicken, but regardless of the platform, the format is still the same.  You simply have to write down every dollar you bring in and match it to every dollar you hand out.  Do it in your photographic memory, on a bar napkin, in your phone, or in a piece of DIY software, but you have to do it if you want to get a handle on your finances. 

Start with the basics of a budget.  While doing it by month seems to be the easiest for most, since many payments are due monthly, use whatever period of time makes most sense for you, such as week or quarter.  First track the amount of your paycheck(s), allowance, stipend, grant, support, alimony, and any other source of income.  If you don’t make a static salary or wage, but say work on commission, calculate an average based on your last 3 months’ income earned.  Next create a separate column of regular expenses.  Regular doesn’t necessarily mean just monthly, but can mean a one-time expense that happens each year, like registration fee on your car or a 3-Day Pass to Lollapalooza.  Write each expense on a separate line with the name and amount.   If you’re not sure of what you spend on a regular basis, start by guesstimating.  You can go back and finesse the numbers later.  While utilities and car payments and bus passes usually make it onto these lines, many people forget the everyday “little” items that add up to big expenses when multiplied to equal a year’s worth of expenses, such as personal care such as grooming, salon visits, and products .  Household expenses like paper towels and tissue and toilet paper many times get forgotten, and expenses like dining, entertainment, kids’ sports and activities, and drive-through coffee really add up.  Take, for example, the year I reviewed my budget in December and was shocked to see that $5K had been spent in stocking our bar at home!  While the number itself is relative to the situation, for me that number represented 5% of the total income brought into our household that year.  It was more than the amount we spent in groceries for the year, more than we spent on our vacation, and topped what we gave to charity in a 12-month period.  Priorities people. 

Once you have all of your income in one column and your expenses in another, add up the two columns.  Your income should be more than or equal to your expenses.  If it’s not, you need to balance out the numbers.  This may require a Come-to-Jesus talk with yourself and a sit-down with your family about prioritizing or it may be as easy as looking for glaring categories where you can spend less and alter the amounts to reflect what you WANT to spend instead of what you have spent in the past.  Maybe you spend $700/month dining out.  It’s less expensive to buy groceries and make meals at home, so in order to cut costs, you could prepare more meals at home.  My dad always says, “Every solution creates a new set of problems.”  Your new problem may be that you don’t currently have time to do that, as by the time you go to work, go to the gym, make meals at home, and spend time with your family, the hours in the day have been exhausted.  So maybe it means changes your priorities for a period of time, or maybe indefinitely, to allow for cost cutting.  Maybe you could lose the gym membership to both cut that category amount and allow for the cooking at home, allowing you time to work out with your spouse, kids, or a friend, after dinner.  Everyone’s different and there is no one-size-fits-all approach to budgeting.  Be creative.  You have to make the numbers work based on your values, priorities, and lifestyle.  Maybe you’ve cut all the proposed expenses you can and find that you’ll still be spending more than you make; time to look for extra income like a second job, or auctioning some of your possessions, or selling one of the items you own that you’ve financed, like a car or a home to alleviate the monthly payments.  No matter what your situation, there’s always options, some more palatable than others.

Start with a Budget - ParentUnplugged - Stacy Snyder
Once you’ve set up your budget of proposed spending, you then need to stick to it and track what you spend.  If you put $400 a month in your budget for groceries, then only spend $100 at the store each week.  Pick and choose your stores and purchases instead of shopping on demand.  Following your own financial recommendation is the key to success.  Track your daily expenses and tabulate your monthly expenses in each category.  Keep receipts, take pics of them, have them sent to you electronically, or keep a running tally in your head of what you’ve spent on what…it doesn’t matter how, just do something that makes sense for you.  Sounds dramatic?  It’s not.  Once you tabulate what you actually spend in a month, you will be shocked, as most of us don’t accurately depict our spending because we don’t have a handle on the facts.  Once you see what you spend, compare each month/quarter/or year what you spend to what you predicted and massage the numbers from there.

While budgeting helps me ensure my family’s financial security, which is hugely important, it also provides the bonus of giving me a reason to sit down and actually evaluate who I am and who I want to be.  How we spend our money tells a lot about us.  It shows me how I spend my time, how my family spends its time, what we hold near and dear, and what we’re teaching or not teaching our kids.  Sometimes I like what I see and I’m proud of our month or year.  Other times, I’m disappointed and ingest the data and use it to hone my priorities and passions, allowing me to refocus for the next year or period of time.  What does your budget or spending say about you?