Keep in mind that the word "BUDGET" means something different to everyone, and that that is okay. They way that you choose to budget may not be the same as your neighbor, or even your spouse.
BUDGET is not a bad word! The goal of a budget is not to restrict you, starve you of fun, or make you miserable. The goal of a budget is to help you be in control of your money, to be responsible with your stewardship.
While the execution may vary, the basic principle of a budget is to help you spend less than you earn. There are a multitude of ways to do that. I have heard ideas ranging from envelopes of cash for expenses, to complicated accounting practices involving electronic tracking of expenditures. No way is going to be the right way for everyone. You have to find a way that fits your finances, your lifestyle, and your knowledge....and keep in mind your way may change as those factors do!
With that said, there are a few things to keep in mind when making a budget:
- Know what your expenses are. You can't budget for things you don't know about or acknowledge. Keep track of what you spend for a time (most appropriately for a month), holding on to receipts can help. After tracking your expenses for a time you will have a better idea of where your money is going.
- Be realistic about your expenditures. Make sure your budget realistically reflects your needs. Budgets need to cover not only your bills, but also your expenses. So, if you buy that latte or donut every morning but don't have it as part of your budget, you could get derailed pretty fast. You have to be honest with yourself (and your partner) about what you spend and where you are spending it.
- Know what your income is. This seems pretty easy, as we all generally get paystubs or some other document telling us how much money we are receiving. Make sure you know how much you are getting, especially keeping in mind things like taxes, fees, retirement, etc that may be automatically removed from your pay before it gets to your bank or your hands.
- Make sure your budget doesn't exceed your income. When you match your expenditures up to your income, make sure that they are at the very least the same, but preferrably having expenses lower than income. If you find that your expenses exceed your income, it's time to do a financial inventory and see what can be cut or at least cut back.
- Remember budgets are dynamic. What your budget looks like today will likely be different than it will look in a year or two. Make sure to periodically review your budget to make sure it continues to meet your needs. You may find expenses that are new that need to be added, old expenses that no longer exist, or amounts that need to be adjusted. You may start out with a simple budget which may become more complex as you learn more about your money and budgeting. Don't be afraid of the change!
- Share the budget. If you live with other people (like children or a spouse) make sure that they know what the budget is....especially if they spend money from that budget. This can also be a useful teaching tool for your children.
- Don't be afraid to get help. Budgets don't make themselves, and financial education is not generally prominent. Don't wait to make a budget simply because you think you don't know what to do. There are plenty of resources (many of them free) to help you get started. Look online (see the sidebar for some links to financial resources), you can find free worksheets, budgeting tips, even forums for people to discuss budgeting. Ask friends and family for suggestions or help. Make use of community resources available. Don't be afraid of budgeting, learn, get help, and get started!
While budgeting will certainly help with gaining control of your financial help, if you have a partner, financial communication is another vital aspect of your financial health. Your finanical health is a joint venture between you and your partner, and you both are stewards of that financial health, responsible for its condition.
Just as there are a variety of ways to create your budget, there are a variety of ways to divide responsibility and facilitate communication. Regardless of how you choose to budget or divide the financial responsibility, good commuinication is essential.
Here are a few ideas on how to facilitate financial communication, and keep everyone in the loop, that were shared at our monthly meeting, and elsewhere:
- Hold regular "financial" meetings. This was the most stated suggestion. Frequency varied from weekly to quarterly, but most suggestiosn were for monthly meetings. You and your partner can go over your budget, discuss expenses for the month, discuss future expenses, and share your experiences with your financial responsibilities.
- Be financially honest. You shouldn't be afraid to share your financial concerns, successes or failures with your partner. It may not be easy, but financial honesty is essential for good financial health and a good partnership.
- Have some place where financial health is documented. These suggestions ranged from a checkbook ledger to electronic logs (such as money management software). Having this information written down can help to facilitate communication, and help you both keep a handle on your financial health.
- Be involved. While one might be responsible for paying bills, and the other for buying groceries, you should both be involved. You may choose to divide financial responsibility in different ways, but make sure you both participate in this important aspect of your partnership.
- Take a money day. We all take sick days, vacation days, even holidays, but how many people think to take a money day? Take a day, sit down with your partner, and talk about your money. Take your monthly meeting to a new level. This can be done as often as you want, but is recommended that you do it at least once a year. Set financial goals, review your budget and make any changes needed, take stock of your financial health. Discuss your financial responsibilities with your partner and make changes in that if needed. Don't want to pay bills this year, well maybe you can trade responsibilties or adjust your range of responsibilities to what suits you now. Give your financial picture a good looking over.
- Make your plan together. While, on some level, this may be best done before your partnership begins (in fact experts recommend you discuss finances before getting married), sometimes we get started late in the game. You may have missed the pre-marital window, but that is no reason to not have a plan. Discuss with your partner your expectations for your finances and for each other. Very rarely do two people with exactly the same financial ideas get married. You'll likely have to compromise, but if you sit down together to make a plan, it is more likely to work. But dont' forget, even the best laid financial plan needs to be dynamic. Life changes and so will your plan!
The process of having a workable budget and good financial communication will take time....nothing that important happens overnight! Don't be discouraged if the process seems to take longer than you would think or like. By taking the first step to create a budget and share financial communication with your partner, you have done the hardest part.
Financial responsibility, living with in our means, and being financially healthy are important aspects of our lives. This is made even more poignant by the recent economic crisis sweeping across the world. Some times it is hard to think of the "lean" times when there is plenty, but the lean times will come, and having a handle on your finances will make those times much less scary and stressful.
Resources and Articles:
Happily Living Within Our Means
Family Finances
Where does the money go?
Five Steps to Financial Well-Being
Know Where your Money goes
Make Marriage a Partnership - Couples Counseled at Fireside
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