This is a guest post written by Adam Jacob, a contributing writer for Frugal Dad
Managing Your Budget – How to Build Your 2012 Budget
Whether we like it or not, money makes the world go around. We can balk at the cliché or we can argue it endlessly but the truth of it is inescapable. Money is what decides what we eat, how we’re entertained and even the quality of our future. Without it we are lost. When something has this much power in our lives, it can be hard not to feel it controls us more than we control it. Thankfully, with a little education and a little more effort, we can put it in its place. Learning to build a budget and work within it is the most effective way of making your money work for you – putting you back into a position of power and easing much of the stress that comes from financial difficulty.
1. Where does it all go?
In order to create a successful budget, you need to know where your money goes. Finding out may be more painful than you initially think. Before you begin to formulate your budget, spend at least two weeks documenting every single thing you spend your money on. Be vigilant! Record all your purchases, no matter how meaningless, from morning coffee to mid-afternoon soda.
There are many ways to do this – some people are happy writing down their purchases with a small notebook, some keep receipts to tally at the end of the day while others use mobile apps for their phones. Whichever you decide it’s important to choose a method you are comfortable with so you don’t become frustrated and abandon your efforts. At the end of the week, sit down and calculate the amount that you are spending and on what. You may be surprised at how your tiny impulse purchases add up when they are lumped together.
2. Grab the reigns!
Once you have a clear idea of what you are spending your money on, it’s time to create a budget. Separate your monthly expenditures into fixed and variable categories. Your fixed category should include expenses that are necessary and do not change from month to month. For example, your rent or mortgage, your utility bills and your car or credit card payments are all amounts that must be paid and generally do not change. Variable payments are those expenditures that fluctuate such as groceries, entertainment, clothing and fuel. These are the areas that you can work with, the areas in which you can create change.
Working with your ‘money diary’ you can decide where you can save money every month by setting a reasonable goal for each expenditure. Remember that your budget should be flexible. If you love renting movies all week, don’t cut down your entertainment budget to make this impossible. Like a diet that is far too strict, you will eventually rebel against your budget and ‘binge’ on emotional spending. Be reasonable and cut down in other areas such as bought lunches or designer coffees.
3. Keep your goal in mind.
Learning to live within a budget isn’t easy but to rely on another cliché, nothing worth having is. If you are used to spending randomly and at will, having enforced boundaries will be quite uncomfortable for a little while. You may find yourself depressed or feeling ‘hard done by’.
One way to prevent this is to take the time to write a financial goal sheet as you set your budget. Think of what you want to accomplish financially and create three columns respectively titled: goals, benefits and timing. In the goal column, write what you want to happen with your money. This may be saving for a vacation, getting out of credit card debt or starting a retirement fund. Write the benefit of reaching these goals in the next column and then finally project a time that you feel this will be accomplished. Put this paper somewhere you can see it every day so that you can motivate yourself as you carry through the first rough weeks of budgeting.
Millions of people are helpless as their income drains out of their pockets every day . They are left wondering where it went, furious at its loss as if it had a mind of it’s own. The fact of the matter is money is simply paper and metal, not the monster many of us imagine it to be. We have the power to control it – it does not control us. As you make your resolutions for 2012, make living in a budget the one that doesn’t get broken soon after you make it. You can afford to have a tiny bit of a belly for a while longer, but losing sleep over chaotic finances is something you shouldn’t have to live with.
Written by: Adam Jacob, a contributing writer for Frugal Dad. FrugalDad.com is a personal finance site, emphasizing the benefits of living frugally and planning for the future. Head over there for that much needed coupon or deal.