Basic budgeting should be taught as part of a required personal finance course in schools everywhere. Although I’m sure it’s taught in some schools, I’m also sure it isn’t taught in all schools. In my early marriage years, I employed basic budgeting as I struggled to survive living from paycheck to paycheck, something I had to learn by myself. I made barely enough money to support a wife and two growing sons and being frugal was a necessity.
Preparing a Budget
Some people are led to believe they need specialized software or some special notebook in order to prepare a budget. It just isn’t so. You can do it with a pen and paper, as long as you know how to write and do some basic math. Having a cheap calculator nearby can come in handy too.
You need to start each page with your estimated income for each pay period. Next, you need to list your expenses and subtract them from your income. What you have left is what you can save or spend on non-expenses.
Needs vs. Wants
When you’re listing your expenses on your budget sheet, you need to list your “needs” as expenses and not your “wants”. Your “needs” include your mortgage loans (or rent payments), utility bills, car payments, groceries and things like that. Your “wants” include things like going to the movies and other recreational pastimes as well as items you want to buy for yourself or your family.
When you’re preparing your budget and you find that you end up with a negative number, the first thing you need to do is to make sure there aren’t any “wants” on the list.
Creative Budgeting and Financing
If you maintain budgets for pay period of up to 3 months out, you may find that you don’t make enough to pay something when it’s due during one pay period but that you can in the pay period following that. The best thing to do is to try to move expenses from budget page to budget page to see if that can correct the problem. If not, short-term loans are another solution.
Getting standard short-term online loans through banks or credit unions can be exercises in futility. They sometimes want information that you either don’t have or can’t give them. More often than not, they cite a lack of expendable income as a reason for denial.
Other options that I don’t recommend without reservations are payday loans and direct deposit advances. Payday loans are provided by other than banks and direct deposit advances are provided by banks and credit unions where your paycheck is directly deposited to. The direct deposit advance is the better option. My bank charges $2.00 in US dollars for every $20.00 borrowed as the finance charge, which is then automatically deducted from the next deposit along with the amount borrowed. Payday loan companies charge much more and you have to make a special trip just to pay them off.
Take Care of Necessities First, Not Last
I know people who will spend money on themselves and their families before they pay their bills. When the debt collectors call and when their cable, telephone and other services get cut, they complain that they don’t make enough money. They actually do make enough money. They just need to learn to budget wisely and stick to their budget. They also need to learn to do things to stretch their expendable income as far as possible.
Instead of going to the movies, which has become rather expensive lately, rent videos and watch them at home instead. Take up other hobbies that aren’t as expensive and can consume a lot of your free time, like stamp collecting or coin collecting. I write as a hobby. It consumes all of my free time and it doesn’t cost me anything more than the cost of my high speed Internet connection, which I would have anyway, and my web hosting expenses. In my case, my hobby pays for itself and then some.
I also know people who work part time jobs in order to catch up with their expenses. More often than not, they caused their own problems by not taking care of expenses before treating themselves to their “wants”.
In my 30+ years of experience in dealing with people who survive from paycheck to paycheck, failing to create and maintain workable budgets is the primary reason they have problems that can only be solved by working at part-time jobs.
Lists and More Lists
I’m a strong proponent of keeping lists for all kinds of things. A budget is just one of those things. As I mentioned in a previous article, even holiday shopping lists should be maintained in order to remain within a budget. Spending money during the holidays shouldn’t be reason to go into debt, regardless of how much you want to spend on a particular person.
If you’re in debt due to spending too much on Christmas gifts (even if you tried not to), now is a good time to start working on a new budget. Good luck!
[Originally published in December, 2008]