Despite the doom and gloom and chaos, history (a great indicator of our future, if we chose to learn from it) has proven throughout our most valuable commodity of time that mankind has not only survived challenges and "storms", but he has prevailed remarkably. This only points to the evidence that our God given creativity and unsurpassable will has been designed to "carry" us through and out of challenges. This same will to preserve mankind is fueling our governments to strategize high level solutions that will ease these transitions. Private and public companies have actively sought out well known and reputable strategic sourcing companies like Source One to evaluate and come up with proven solutions for their existing budgets and spends. Where does that leave the rest of us, the average citizen?
The answer is BUDGET.
Budgeting is a very simple concept that has been generally stigmatized. A budget has become the dreaded 6 letter word of most households, which has led to external and internal conflict. This results from misinformation on what a budget is and why we need a budget.
Every financial institution requires and uses a budget. Yes, a home is a financial institution because money comes in and money goes out. Even, if we do not use a formal budget on spreadsheet and financial sheets, we use the concept of budgets on a daily basis. The negativity attached to budgets stems from when budgets are formally introduced into our lives. Budgets have not been properly taught to us when we are young (which I believe is where it should start). Budgets are mostly introduced to us when we have come to a financial "crises" when we are forced to sit down and re-evaluate our money. The result is... "Oh no, we have to budget".
A budget is merely a tool that forces us to evaluate our past, current, and future. Notice I didn't say money. A budget is an effective tool that will helps us visualize where we have been, where we currently stand, and where we plan to go with our lives (as an individual and as a family). Budgets help shape visions and cultivate dreams by empowering us with a plan.
Budgets also remove any "surprise" elements from the financials in the home. When the money flow is evaluated continually, there is no extraneous expenses from controllable overspending that "puts you in the red" without warning (outside of unforeseen incidents).
Budgets moves people from a "going through the motions" of living paycheck to paycheck mindset to a purpose driven, goal setting, and results oriented mindset/attitude.
So, how does a budget work?
A collection of "snapshots" of past spending patterns helps establish the "budget". Past spending and earning patterns now becomes the new budget. In essence, we don't want our money to "budge" from the new pattern that is being set. In order to do that, the money's activity is tracked (usually on a monthly basis) and compared to the set budget.
For example, I make $1000 a month and I want to save $200 a month after all my bills are paid. A budget will help me save the $200 every month, and if I cannot save the money, a budget will me help find out why and where I can make changes to my spending patterns to achieve my goal.
Once a budget is set (done one time), the "spend analysis" should be done continually (at least monthly). A great time to analyze spending is when bills are being paid. Making changes to your "set budgets" should be done as often as circumstances change or as new goals arise.
A budget is broken out into two main sections:
Expenses are broken down into the following main categories:
- Fixed Expenses - monthly bills that are the same every month throughout the year (rent/mortgage, cell phone, cable, etc...)
- Variable Expenses - monthly bills that change from month to month (electric, gas, food, etc...)
- Seasonal/One time expenses - bills that may not occur monthly, but needs to be planned out for future months to come (school uniforms, tuition, etc...)
- Savings - an account can be set up for each savings project and automatic transfers can be utilized to facilitate the actual moving of money from one account to another (see your local banking institution on deciding the best account for your specific needs).
- Gifts - monthly/quarterly/annual, etc... donations to charities of your choice
Families should budget together with all input shared and valued equally. Budgets should be made transparent at all times to both spouses. Parents should always make the grown up decisions, but children should be aware and continually reminded of the family goals so that they can be actively involved in "keeping to the budget." Statements like, "Remember that we are trying to save for a new car, so we are going cook together instead of eating out tonight" are great ways to make budgeting a family effort. Involving children also helps them understand the concepts of managing money to a budget at a young age and they will retain and use these same skill sets as they mature.For those who are techno savvy, find a free budget template and plug in your numbers from past bills and bank statements (2-3 months is a good gauge in spending patterns). Mint.com also has a great free tool that interfaces with your banking institution with little maintenance.
If you are not familiar with excel or computers, simply keep a notebook and a calculator handy to track your monthly spending. Print out the templates and record your spending patterns by hand. You can then calculate the monthly incoming and outgoing activity of your money and make adjustments to you budget as needed.
The hardest part about budgets is weighing wants and needs against dreams. Once a budget is formed and the goal is clearly established, then keeping to the budget is easy. Yes, it is nice to have the most premium sports package Comcast has to offer to catch every game of the season, but at what cost. Asking questions like, "How much do we want to save for my children's' college?" "How much do I need for a down payment to my first home?" "How much do we need to save for our next vacation?" and others helps set the goals and visions for our dreams. Then, work backwards.
For example, if a down payment for a home is $20,000 and in order to save that much in two years, $834 (take $20,000 and divide by 24 months) needs to be put away every into a saving account every month for two years (work closely with a bank to find your best option for saving accounts that yield the most interest so your money grows while you wait!).
In order to save $834 a month, "something has to give" in the monthly expenses. It might be eating out less, cancelling the gym membership (and working out at home or outside), cutting out cable TV (and watching free TV online or engaging in free creative activities with the family), car pooling to work, etc... in order to make it happen.
It is possible to reach your dreams and goals in a very realistic and practical way. Don't delay, budget today!