Only about 40% of Americans have a working budget because creating a budget can be overwhelming and stressful.
Imagine a life where you weren’t working for a paycheck, living month to month in financial stress. Instead, you were working because you enjoyed what you do, and could afford doing it, even if it isn’t the best paying job. When creating a budget, a person must learn how to live within their financial means. A person must define what is necessary and that which is a luxury. Furthermore, it’s important to determine what luxuries will create lasting happiness and good memories, or just a spontaneous joy that is temporary. When you come to those terms your budget can be made in confidence. You can start living in a budget that will make you happy. I know, it’s not that much fun to talk about budgeting, but if you can tie it to your values and quality of life, it just may give you the motivation to stick to it. If you feel a budget will limit your financial freedom, read more. I’d like to convince you that a budget actually allows you to have more purchasing power because it adds stability and control into a person’s financial situation.
Start your budget by creating a spreadsheet of what you are actually spending, and then go to work trimming and finding room for saving. When you see what you are actually spending, and compare it to the income you have, you’re managing your cash flow. Cash flow determines whether you are operating over budget and creating more debt, or under budget and building wealth. Operating over budget will cause financial stress and anxiety. It can also cause problems in a relationship or marriage. With a first time budget it is normal to be upside down. When deciding what you need to trim in your budget ask yourself – is it essential first. If it’s a non-essential item, ask yourself – how is this making my life better? Those two questions will help you trim when you need to cut expenses. The process is an eye opening experience. Remember, you can only manage what you can measure.
The following are two simplified budgets, to demonstrate the importance of savings.
Emergencies happen, and they usually happen at the least convenient time. This person’s budget does not have an emergency fund. When they are faced with an unexpected emergency, they may end up maxing out their credit card. Then it becomes stressful having to decide which bills not to pay to cover the emergency.
Individual has the same emergency; however they have an emergency savings account, plus extra money that is not allocated for anything. They are able to handle the emergency with minimal financial stress and move forward with their financial health.
For some, cable entertainment is a way to relax after a long day. A bit of advice… shop around! This market is getting very competitive and cheaper ways of consuming media is happening quickly. Consider Netflix or Hulu instead of Cable. If you must have cable, determine the cable providers in your area, and find the best subscription rate. You can even ask your current provider if they would honor their competition’s advertised rates if the competitor’s rate is lower than what you are currently paying. Lastly, pay close attention to your monthly statements. It’s not uncommon to be charged for services that you are not using. You are your own advocate so take the initiative to pay attention to the fine print.
Mobile data plans can be costly. If you have wireless internet in your home, you can limit the data plan on your phone and instead utilize the wireless connection. If your main mode of communication is texting, it may make more sense to subscribe to a less expensive unlimited text plan vs an unlimited data plan. Read over your plan details carefully and be sure you’re being billed accurately. If free minutes start at a specific time, plan calls accordingly.
Car insurance premiums increase as deductibles decrease. If possible set aside the highest deductible in a savings account; let your money work for you and pay the lower monthly premium. Don’t forget about good driver discounts and good student discounts if you have children.
Health insurance is the same – high deductibles mean lower premiums. There are multiple plans with multiple benefits. Find the plan that suits your specific needs and remember to do your homework. Unforeseen medical bills are a common way to get into debt fast. Never put large medical bill payments on a credit card. Work it out with the medical provider – they are very willing to work with you just to get paid. You’d be surprised how many go completely unpaid. Make sure you save up enough to cover your maximum annual out of pocket charge too. That way if you have a medical emergency, you won’t have to worry about covering the cost.
Groceries… never go food shopping when you are hungry or without a list, chances are you will buy everything you do not need and only what sounds good. I avoid large box stores as much as possible because it seems I pay twice as much, buy more than I need, and waste twice as much time there too. I find sticking to my money and time budget easier at places like Trader Joe’s. Who really needs 10 different choices of peanut butter? Go weekly to the store and try using cash instead. If you go to the store with $50 on hand and force yourself to use cash only, you’ll be disciplined.
The goal of your budget is to avoid overspending, increase savings and create clarity. This is the route to discovering financial happiness. Have an incentive in mind. It is too tough to trim expenses if all you are doing is taking things away. If you were to cut down expenses and increase savings so you can afford a vacation every year that is fully paid for with your savings – then you’ve created motivation that makes it worthwhile. When you are adding savings columns for specific goals, name and separate the funds, such as vacation fund, new car fund, sabbatical, adoption, etc. Keep in mind, a budget isn’t etched in stone. It’s a work in progress and needs to have flexibility if you are to be disciplined. After all, a budget that isn’t attainable never works, because you will give up easily. Once you’ve created the budget, go back and review it every 3 months or semi-annually to make sure you are sticking to it.
If you have done all of this and you are still having difficulties spending within your means and saving appropriately, seek help. We find sometimes our clients’ only way to succeed is to have accountability to stick to a plan. We’d love to help you Discover Financial Happiness, to schedule a consultation click here. (link to contact us page)
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