Every single personal money management system starts with the same advice, that you have to make a budget and stick to it.
It makes sense, but for a lot of people budgets are just paper exercises because they have absolutely no idea how much they need to spend on their lives.
To manage your money you have to know what money comes in and what money goes out but so many budgets get blown by the first little crisis.
The argument always is "I absolutely needed it so I had to buy it" and if that absolute need is a new clothes for a child that had an unexpected growth spurt or to pay a vet bill then yes, you do need to spend the money.
But what about if your best friend is getting married in the Bahamas and wants you to be her maid of honor or if your son has a chance to go on an amazing, but costly, school trip?
Once again you might look at what you thought was a great budget and realize that it doesn't work and just abandon it.
Maybe your budget gets blown because you have a unrealistic expectation of what you life should be like. It's hard to be the only one in the crowd without, be it the latest cell phone, wardrobe or shiny new toy.
Are you being overly influenced by what you see on television? When you buy something new is the first thought in your mind how you are going to tell people about it? Do you feel let down when other people are not impressed or have a better things than you do? When you buy something that is suppose to add value to your life are you quickly disappointed?
For many the idea of a budget is confining and they will do anything to avoid it but a budget should be there so you will know how much extra you will have left over for all the fun stuff.
Do you know what you own? Is your home so stuffed full of things you are always finding items that you totally forgot about. These are items that you paid good money for and they are disappear into the chaos of your house.
Do you know what the value of your home and possessions are? If you were to have a disaster like a flood or a fire would you be able to show the insurance company the value of your items or would you have no idea.(Insurance companies love cutting a check as quickly after a disaster as possible because it will be months before their clients realize that they forgot to include grandmother Sally's antique tea service and a host of other pricey items that they will now not be reimbursed for).
Could you go for a week without buying anything? Of course you have to get your groceries for the week but what else are you spending money on? A candy bar after work everyday, cabs, magazines, coffee (and more coffee) or liquor?
Look at the bits and pieces of things you buy (almost unconsciously) and add up all the costs of them over the year. Spending $1 every work day adds up to over $250 a year. Spending $5 every work day adds up to over $1250. Spend $50 every weekend on dinner out and stuff and you spend $2600 a year. A large bag of chips twice a week? Over $300...on chips!
Maybe you are not the problem, maybe you have children that you can't leave the house with without shattering a $20 bill. (Mom, Mom, Mom....) candy and pop from vending machines, junk food because they don't want to eat at home, some toy to complete their "collection".
I am not saying that you should not spend money but I am saying that you should spend your money consciously, at the end of each day you should know how many times you opened your wallet and exactly how much money you spent and why.
Start tracking your daily money habits. You might think that you don't have to write down the things that you spend your money on, you already realize what they are, but you might not really want to face the scope of your problem.
To get a realistic budge you need to know how much and why you are spending now. Start collecting receipts from every purchase that you make and at the end of the day writing down exactly what you spend your money on.
If you are married then you are also going to have to get your spouse to do the same thing. You don't want to come across as a control freak or be making judgements on their choices but you both need to know how all the money is being spent.
Grab a notebook where you can either write down the purchases you make everyday or just staple the receipts onto the page. It doesn't matter if you are buying with cash, credit card or debit card every purchase no matter how small it is needs to be recorded. Add up your spending for each day.
This exercise is not meant to make you feel bad about what you are spending your money on but to just clarify to you what, and how much, you are spending.
You are going to see some spending habits you really don't like pretty fast but don't try to justify them. If you are having money problems solving them with treats to yourself is not going to help you one bit. Get rid of the mindless spending and after a month of recording everything see if you do have money available for paying off debts or saving for a special purpose.
You can't budget until you are realistic about your money leaks and acknowledge that money is tight.
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Photography and ContentCopyright Ingrid Talpak 2012
Morestylethancash
Thank you for this wonderful article. I have tried to live by a paper budget for years and totally failed. Thought I was the only one. Now, we use a different system, and call it a different name.
What really kills me is not being able to say "no" to friends who invite me to do things with them. Has blown out every budget I've ever attempted.