The next series of posts are going to address the idea of budgets. I know, I know, it’s not something that is much fun? Let me challenge you on that. Budgets can be fun (well, at least maybe less than painful) if you approach them in the right way.
Basically, a budget is a record –in the beginning a written budget is preferred – of what you bring in and what you spend. After several decades of helping people with their finances, I’ve come to believe that basic budgeting is one of the most important aspects of our financial lives as well as one that we are most poorly equipped to handle.
Here are the basic things you will need to create a budget:
First, the good stuff:
Know how much you make, both gross earnings and how much you get to bring home. (Get a “pay stub” or other record from your employer showing where all of your money goes before you get to keep some of it.Things like insurance, taxes, etc.)
Know how much other income you might have (tax returns, interest on savings, bonus expectations, etc.)Reviewing several years of these can give you a good idea of what to expect in the future.
Do you anticipate any changes to your income in the short term (are you planning to change jobs, will you get a promotion, is your company merging, etc.)?
Now, the “other stuff” (How much you spend). Make two columns on your yellow pad – one for “must have” and the other for “nice, but not mandatory”. Here are some examples:
MUST HAVE NICE, BUT NOT MANDATORY
Rent/Mortgage Cell Phone Plan
Taxes and Insurance TV and Internet Service
Car/Transportation Expenses Cabin/Second Home
Health Insurance Gifts
Utilities Storage Unit
Clothing Excessive Wardrobe (for you clothes horses)
Food/Groceries Dining Out
Savings (Retirement and Emergency) Savings (Kids’ or Grandkids’ college or other)
You get the idea. The list above isn’t all inclusive. The easiest way to determine all of these figures is to write down every dime you spend over two or three months. You can fool yourself for a month, but not for two or three. I’m confident in saying that, if you faithfully record everything you spend, you will find that you are spending a significant amount more than you thought on things that fall under the “nice, but not mandatory” category.
You’ll also note that I’ve listed several things in the “nice but not mandatory” category that you may disagree are optional – like cell phones and internet. I’m not saying you can’t have these things, but recognize that you may be paying a lot more for them than you need to and that you may be paying for things that you don’t use (like unlimited data for your cell phone, the most expensive satellite TV package containing 495 channels you never watch, a landline phone that came because it was part of the “package”, etc.) Almost all of us can whittle these types of expenses.
In coming posts I will try to hone in on budget concerns for different age groups. As always, if you have some specific items you would like addressed in future posts feel free to send me an email at email@example.com.