Personally, I never started doing a budget until I had to start talking to people about doing a budget. Once I committed myself and actually paid attention to my spending, I knew that I should have been doing it all along. I am now a firm believer in doing a budget. One of the most important things budgeting does is make you aware of your spending and in turn, helps you gain control of your spending..
A discussion of budgeting would not be complete if it did not include mention about a person’s “WANTS” and “NEEDS.” Very simply, “wants” are those things that make life comfortable, but that you can generally live without if you really analyze them. “Needs” are those things that you need to survive, and those items generally center around food, shelter, and utilities.
Candy bars, bags of potato chips, and fast food visits notwithstanding, everyone has to define their own specific “wants” and “needs” because each person’s perception of what is important in their life is different. Let’s take a look at the cell phone, which would most certainly have been classed as a “want” a number of years ago. Currently, though, that could be changing – a person who owns their own business or a person who has done away with their “land line,” for example.
If you go to anyone’s house, you will find an item that, at the time it was bought, the person felt they absolutely “needed” it. But, that item is now seldom, if ever, used. Without defining a budget and analyzing “wants” and “needs,” people may spend money based purely on automatic impulses and their “wants” only.
A budget can be as simple as compiling everything manually in a book or as elaborate as one of the many spreadsheets available for computers. Whichever one you decide on, do it from the standpoint of keeping track of everything you spend because no detail is small enough to ignore. In order for you to get control of your spending, you have to resolve to curb your unnecessary spending as much as possible.
There are two categories of spending: fixed and flexible. (1) Fixed expenses are basically the bills that you have to pay such as mortgage, rent, and utilities. These are the ones that are based on your needs and, if you have to find any extra funds, won’t readily find those funds here. It usually takes time for these payments to change; (2) The flexible expenses are the expenses in the category of groceries, clothing, and donations; but, they also should include your “wants” spending – soda, trips to the fast food places, and donuts. If you want to find extra funds, this is where you will readily see things that you did not need to spend money on.
Once you start your written budget, label each item you spend your money on as a “want” or a “need.” I suggest doing it daily as you write the items in your book because that way, you don’t have to rack your brain to remember what it was you spent the 75 cents on. Be specific about where the money went, avoid generic labeling such as, “etcetera,” “other,” and miscellaneous.” If it was a bag of peanuts, that’s what it should be marked as.
At the end of each month, review and question your expenditures. Start with the “wants” and then go over the “needs” with the same scrutiny. Ask yourself questions such as, “Did I have to buy (spend money on) this expense?” If you can justify it, then query yourself as follows: “Did I need to spend that much?,” “Could I have limited the amount I spent?,” “Can I adjust the amount I am spending?,” “Can I eliminate the expense?”
Even if it is a justifiable need, it never hurts to ask yourself just to see if you can free up additional funds. For example: many people can justify allowing their teenage children to have phones based on the safety factor; but, can they justify the Blackberry? Also, in recent years, text messaging has become so popular that talk times are decreasing; can the 1,500 minute plan be decreased to the 750 minute plan and enroll in the unlimited text messaging plan? Review all you spend, as often as you can, so things don’t get automatically renewed or you don’t get re-enrolled in something without your direct approval.
One of the immediate spending habits I curbed was at the convenience store that is attached to the gas station. I have always filled my tank weekly. When I decided I was going to do my budget, the first time I went to fill gas, I used my ATM card at the pump and was headed back into the store to get a cup of soda and a hot dog. I stopped myself realizing I would have to write it down in my budget book. Looking back on that habit, I found that each week, I had bought a soda, hot dog, bag of chips, and various other snack items. Depending on what I bought without thinking, that expense was easily $25 to $40 per month.
The next time you stop to put gas in your car, observe how many people come out of the store with some snack item. Regardless of whether they pay-at-the-pump or walk in to “pay cash before pumping,” the greater majority of people will purchase something from the store. Most of them are doing it without thinking.
Some other things I began noticing were that I no longer came out in the morning to find a full cup of soda (ice all melted) I had bought the day before, the second hot dog from the 2-for-$2 special in my refrigerator, and partially drunken bottles of water laying around in different places. Becoming aware of my spending made me think twice about just picking up items because they were on “special.”
Don’t put off starting your budget. It costs almost nothing if you have access to a computer. Do a Google search for “Monthly Budget Planner” and you will get a directory listing of various templates you can download. If you don’t have a computer, just go to any department store or office supply store and purchase a budget book. Other than that, it could be as simple as writing down your income and keeping track of all the money you spend on a notepad.
You don’t have to wait till the first of the month to begin, start the moment you decide you want to do it.. Human nature says that if you put off the start date, the less likely a person will start it. Once you have more than 60 days of budget expensing done, you can easily convert the period to be the 1st through the end of the month. Old Chinese Proverb: “A journey of 10,000 miles begins with the first step.”