Budgeting for Life
Budgeting for Life – Part 1
If you're anything like me, you've spent a great deal of your life living from payday to payday. You don't really have a formal budget. A few days before payday rolls around, you are flat broke and brainstorming ways to make ends meet until your payday arrives. When you finally get paid, you celebrate by going out to dinner at McDonald's. You then pay your rent or mortgage, buy groceries and fill up your petrol tank.
After that, there's not much left. You pay the phone bill - you don't have much leeway because the phone is going to be cut off in two days. You call the electricity company to ask for another week to pay. You pay the $95 minimum payment on one credit card (about $90 of which is interest). You skip making a payment on the other credit card this time around - you made a payment on that one last week. Within days, you're wondering where you're going to get the money for the electricity bill, dodging creditors on the phone and staring into the cupboard, trying to figure out exactly what you can make out of a box of macaroni and cheese, a can of baked beans and a bottle of barbecue sauce. And so the cycle continues.
I hate to pull a Dr. Phil on you, but I just have to ask: "How's that workin' for ya?"
Many of us also use the term "budget" very, very loosely. I know I did. If you've been keeping your budget in your head, now is the time to get it down on paper. Creating a realistic and workable written budget is a crucial element of any debt elimination plan.
Today, I want you to put together a sample budget based on what you are currently spending. You will work with this budget over the next few weeks on your road to creating budgets that you can live with.
To create a rough draft of what will eventually become your budget, I want you to first write down your gross weekly pay (before taxes and deductions), as well as your net weekly pay (after taxes).
Next, write down the following figures:
- Amount you are currently contributing to giving, including tithing and charitable donations, each week. If this amount is currently zero, write that down.
- Amount you are currently contributing to savings each week. If this amount is currently zero, write that down.
- Average weekly housing expenses, including rent or mortgage payments, insurance payments, rates and repairs.
- Average weekly expenses for utilities, including telephone, gas, electricity, internet and cable television.
- Average weekly car expenses, including car payments, car insurance, registration, maintenance and petrol.
- Average weekly amounts spent for other household expenses, including groceries, child care, clothing, haircuts, magazine and newspaper subscriptions, entertainment and buying gifts.
- Minimum weekly payments on credit balances.
Write down anything and everything you can think of, making the list as detailed as possible and separating expenses out as much as possible. (For example, rather than simply lumping a bunch of expenses under "miscellaneous," breakdown those expenses into more specific categories, such as clothing, entertainment, public transport costs, takeaways or eating out.)
Take your time and work on this list over the next couple of weeks. It is very important that it is as accurate as possible. If you need to, refer to previous billing statements or your checkbook for information. Also, consider tracking expenses for a period of several days to a week in order to get a good idea of how much you are spending.
Don't be surprised (or discouraged) if you find out your weekly expenses are currently exceeding your weekly income. In two weeks, we'll begin to work on turning things around and creating a budget you (and your creditors) can live with.
Budgeting for Life – Part 2
Above, I asked you to write down the current amounts you spend for housing, utilities, food, clothing, and other household and living expenses. I also asked you to write down the amounts you are paying each week toward servicing debt, including car loans and credit card debt. Finally, I asked you to write down the amount you are setting aside each week for savings.
By now, you should have a clear picture of the current condition of your budget, and it may not be pretty.
If you are saving regularly, then you deserve a big pat on the back. However, if you are like most people struggling with debt and living from payday to payday, the amount you are setting aside for savings each week is probably nothing at all. Your weekly living expenses and the minimum payments on your credit cards may total more than your weekly income, causing you to go further and further into debt each week. As for budgeting money each week for things like new socks and underwear, or going out to a movie on a Friday night, who can afford such luxuries?
Most of us who struggle with debt do things completely backwards. We do not save. We do not budget money each week for necessities like clothing. We do not set aside money for holidays or even for weekend entertainment. Instead, we barely meet our living expenses and are unable to keep our heads above water when it comes to debt. Instead of setting aside money for new clothes, we do without. Our closets are filled with clothes that are old, tattered and outdated. Instead of setting aside money for entertainment each week or even each month, we deprive ourselves of these most basic joys of life. Then, when our deprivation has reached its saturation point, we binge on food and fun, spending money we cannot afford to spend and then regretting it when we wake up and find ourselves more deeply in debt than we were the week before. Holidays? What are holidays? Our last real holidays were so long ago that they are only a dim memory.
When you are overwhelmed by debt, setting aside money for things like clothing, entertainment, holidays and even savings may seem unwise and even impossible. But, the truth is, if you ever want to turn your financial situation around, you must start budgeting for all of these items.
Last time around, you wrote down the actual amounts you are spending each week. This time, I want you to write out your dream budget. Don't get crazy - be reasonable. Write down your fixed weekly living expenses and your minimum weekly debt payments, like you did last time. But this time, also write down a reasonably weekly amount for things such as clothing, entertainment and other items that are being neglected in your life. Do you have a beloved hobby you've been neglecting because of the expense? Include something in your weekly budget for that as well.
The truth is, we don't take vacations every week, we don't buy Christmas gifts each week, and we don't even shop for clothes every week. So, come up with a reasonable annual figure for these things and divide them by twelve to come up with a weekly figure.
Finally, include in your budget an amount to be put into a savings account each and every payday, equal to at least ten percent of your gross income.
This is all well and good, you may say. But my new weekly dream budget far exceeds the amount of money I make each week. Again, that's okay. This is a jumping off point. We now have our actual budgets and our dream budgets. The next step is to reconcile the two and come up with a realistic budget that meets somewhere in the middle. Good Luck. |
