By Terry Rigg
Author's Note: This article is one lesson from the free email course "
Beginner's Guide To Budgeting"
There are several factors that contribute to budgets failing. The most common is that people just don't want to change the way they live and how they handle their money.
We get comfortable with the way we live and making a major lifestyle change is something that scares most of us. But, my friend, this is probably what it will take to get your finances in order and keep them that way.
I can almost guess what you are thinking, "I'm done with this article. This clown is trying to make me change everything and I don't want to". Am I right?
This change doesn't have to be devastating. When you change the way you think about your finances this change will be welcome.
The first and most important thing you have to do is to decide what it is you want to do with your money. I'm talking about setting your goals. When you have a goal that is really important to you it is easier to do what's necessary to reach that goal.
"That goal stuff is all fine and good but what if I can't even pay my bills now? What good is a goal to me?" If you don't have a goal there is little motivation to solve the problem.
We are working backwards here. You set your goal first (the solution) and then work on how to get there (the problem).
Let me give you an example. You have a goal to be debt free in the next 5 years. The problem is that you don't have enough money now to pay your bills and put food on the table. This seems like an impossible mission. If being debt free is really important to you then you will find a way to make it happen.
Recently I received an email from a lady that wanted information about what she could do to keep here bill collectors from contacting her work and discussing her finances with her friends and family. I won't go into details here but you can read
the case study.
This lady and her husband had car loans totaling over $1300 per month. They voluntarily had these vehicles repossessed. This action will have a devastating effect on their credit report, however, I don't believe it will be quite as bad as having to file bankruptcy.
This couple made a hard choice in order to reach their goals. While you may not have to have anything repossessed, you are still going to have to make hard choices. My point is that you can do it if you try. This is just one example of how you can budget even if you are behind on your bills.
There are many other things you can do if you are behind. One of the best ways to get started is to contact your bill collectors and see what arrangements can be made. You may be surprised to find that these people are willing to work with you to solve the problem.
How many times have you considered a purchase just to ask yourself "Can I Afford This?". When you have a budget in place this is a question that you won't need to ask. You will have the numbers in front of you. If the payment is too much to fit in your budget then the answer is No.
The time to start a budget is now. It doesn't matter whether you are 18 or 65. Once you set up your budget and have it in place for a couple of months you will start to realize that it isn't difficult.
As with anything else there are basic guidelines that are universally accepted. These vary somewhat depending on who you talk to but the below percentages will get you close to what is accepted.
What I am talking about is the percentage of your income (take home pay) that you should allot for each category of your budget. At Budget Stretcher I have broken this down to just 4 categories to make your budget experience as simple as possible.
Here are the percentages:
Housing - 30% of your take home pay. Housing costs cover your rent or mortgage payment, taxes, etc.
Other Bills - 30% of your take home pay. This is the catch all category that includes your regular bills excluding housing. Your credit cards, utilities, loan payments, car payments, insurance, etc. are all covered in this category.
Household Expenses - 30% of your take home pay. This is what it takes to run your household. This includes groceries, car gas and all the other stuff you have to pay for between paydays.
Savings - 10% of your take home pay. This is possibly the most important of all of the categories. If you don't have a long term and short term savings program it is going to be difficult to solve any money problems you may have.
At least %5 of your take home pay should be used for short term savings. This is very important because it is what is going to cover any unexpected expenses that may pop up. This will prevent the use of credit cards to cover these expenses.
Your short term savings should be kept in a savings account or other savings program that will allow you to lay your hands on it quickly. This isn't to say that you should use this when money runs short at the end of the month.
You should also put aside at least 5% of your take home pay for your long term savings. One day you will want to buy a house or send the kids to college and this is the pot of money that is going to accomplish that.
Even if you have a 401k or other retirement plan it is still a good idea to put this money away. This money needs to be in an account that will pay you the most interest without a lot of risk.
Since I'm not an investment expert I won't even begin to make a recommendation on where to invest this money. You will need to consult a competent investment broker for this advice.
As you can see by the percentages above your budget is actually as simple as 2+2. If your bills and expenses doesn't fit into the recommended percentages then you need to work on it until it does.
If you are like I was you can probably come up with a thousand reasons why you can't budget your money. Either you have too many bills, you are too far behind on those bills or you just don't want to make the perceived sacrifices necessary to live on a budget.
I'm not going to try to fool you into believing that there won't be sacrifices. I am going to tell you that what ever sacrifices you have to make will be well worth the effort.
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Terry Rigg is the author of
Living Within Your Means - The Easy Way and editor of
The FREE Budget Stretcher Newsletter and Budget Stretcher web site. He has 25 years of experience counseling individuals and families concerning their personal finances.
Yes, You Can Budget!
