Key Reasons for Managing Your Budget
- You Have Limited Income: Virtually everyone has limited
or fixed income. Without budgeting you are being controlled
by your environment. If you have a plan, you are more in
control of your money. Without a budget, you may not really
know you are spending more money than you are earning.
- So That You Know Your Limits: Knowing what your monthly
expenses are projected to be and what they actually are
will help you keep track of how much money you have left
over for future goals and needs.
- You Have Unlimited Demands: There is an endless demand
on your finances. Our commercial capitalistic society is
constantly calling out for you to buy. If you have minor
children, the demands are greatly increased by the things
that they want, the activities they are in, and the schools
they attend.
- You Want Freedom Not Bondage: Budgeting seems to be
restrictive to some people. The reality is that we have to
make choices between what we want at the moment and our
regular bills and goals for the future. However, there is
freedom in knowing what your limits are. Many people find
this liberating, because it creates the opportunities to
grow and mature.
- You Have Future Goals: If you are sacrificing today, it
helps to know what you are saving for in the future.
Obtain a financial plan so that you will know what your
goals are and for what you are saving.
- You Want to be More Aware of Where Money is Going: If
you do not have a budget, you may have no idea where your
money is going. Knowing where you money is going will help
you identify if you are spending too much money in specific
areas.
- You Want Less Stress: Spending without a plan and a
budget increases your stress because you do not have a well
thought out plan for paying your bills and you may spend
more money for fun than you can afford. Planning and
budgeting will give you the peace of mind that you are on
the right track.
Contract with Yourself (and between Spouse)
Budgeting is very hard for many people; therefore, it helps
to have a contract with yourself. If you are married, this
agreement should include your spouse. If you work together,
you will usually accomplish more than you could on your own.
I hereby resolve to:
1. Start a budget, and pay attention to it weekly and
monthly
2. Not spend more money than I make
3. Be in financial partnership with my spouse with no
secrets between us
4. Not borrow to purchase items that depreciate in value
5. Not let my emotions make me purchase anything, including
gifts
6. Not purchase something over budget unless it was
unavoidable
7. Not purchase anything that I don't really need, no
matter how good the sale is
8. Not purchase something to keep up with the Joneses
9. Not apply for any new credit cards, unless lowering
interest rates
10. Pay off all credit cards monthly (I will work toward
paying them off)
11. Not spend money on fun things unless I have paid my
monthly bills
12. My spouse and I will both be the "fun police"
13. Include children in the budgeting exercise to teach
restraint
14. Not obtain high maintenance items like a pet or hobby
if I can't afford the expenses.
15. Not buy something that costs over $50 without
consulting each other and the budget
Cash Flow Management Checklist
In addition to having good budgetary habits, it also helps
to take advantage of money-saving measures. The following
are many of the things you can do to help you save
thousands of dollars per year.
- Employ tax advisors to you avoid overpaying taxes
- Use low cost investments that have low to no
commissions, fees and expenses
- Shop your loans to find lowest interest rates
- Shop your insurance for the lowest prices possible.
- Buy smaller homes and cars since they require less money
to maintain and insure
- Go on cheaper vacations
- Frugal travel to lower the already large consumption of
your income for gasoline
- Eat out cheap, less often and at less expensive
establishments and cafes
- Spend less on food by shopping at low price grocery
stores and pack your lunch
- Lower home energy consumption by employing easy to find
and low cost solutions
- Break smoking and excessive eating habits to save on
tobacco and fast foods
- Monitor emotions to avoid depression or stress related
purchases
- Obtain from the library resources about budgeting,
financial planning and spending
- Go to the library for entertainment books and DVDs
- Reduce or eliminate cable TV
Budgeting Tips
Use technology or spreadsheets:
Obtain software (or use spreadsheets) that will help you
pay bills and make and monitor a budget. Devote time to it
by keeping track of all expenses and enter them into your
software program or monthly spreadsheets each week.
Save all receipts, bills, household documents, and tax
documents:
Organize these items by category into an accordion file or
drawer: e.g., auto, bank, business, credit cards, dental,
medical, grocery, income, insurance, mortgage, utilities,
general receipts, school information, and taxes.
Balance your checkbook:
It is amazing how few people balance their checkbooks
monthly. Budgeting software makes reconciling simple, but
you can read the back of your statement or make an
appointment with your banker if you need to learn this
skill manually.
Tax Time:
If you use budgeting software, you can run a tax summary
report before you work on your taxes. If not, and if you
itemize your taxes (Sched.A), you must total the
appropriate columns in your spreadsheets, e.g., Medical
expenses (Your accountant may provide you with an organizer
to help you get ready for tax time.) Remember to place
quarterly and yearly expenses on the appropriate month in
your budget so that you do not overspend. For example,
annual insurance payments, quarterly tax estimated
payments, annual homeowners association dues, etc.
Summary
Good cash flow management is key to implementing any
financial plan; commit to doing this well. No one likes
self-discipline, but it is actually good for us. With
proper management of your finances, you will become more
confident and less stressed about your future. Remember,
one bad financial decision can sometimes take years to
undo. Be very careful with all decisions you make.
----------------------------------------------------
Kent E. Irwin, ChFC, CLU, CAP, co-founder and CEO of
eFinplan.com. eFinPLAN is the first and only web-based
comprehensive consumer financial planning software designed
for people who are trying to do a lot of their own
financial planning. Find out more about how do-your-self
financial planning and how to reach your goals at: =>
http://www.efinplan.com/
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