The only “B” word other than bankruptcy that people hate to hear during financial planning is budget. But the word has gotten a bad reputation.
Literally, financial budgeting just means establishing a plan. If you budget, you are spending with a purpose before the month even begins. Instead of spending your money before you make it, plan where it goes before you spend it.
Financial budgeting is strictly spending your money with intention. In fact, by doing so, you will experience more freedom than before. If you can create a realistic budget and be consistent with it, you will find that you have even more money at the end of the month.
To get a grip on how the budget in your household should look like, take financial planning and budgeting seriously by asking yourself a few questions.
How much income do I have coming in? Include every penny. How much do I owe in bills every month? You need a written financial budget or you will not stick to it.
Your financial budget is telling you where your money will go, instead of you asking yourself weeks later what happened to it all. Always spend your money on paper first before actually handing it to someone else.
A new system financial planners are using today is called the Envelope System. It goes back to the old days when people used to use cash envelopes to budget.
You can implement it today as a simple step towards financial planning and debt reduction.
1. Budget each paycheck. Put on paper down to the last dime how you are going to spend it. Do this BEFORE you get paid.
2. Create categories like food, gas, clothing, and so on and make an envelope for them. All other major bills will come directly out of your bank account. Leave enough money in your account to cover your bills and your bank fees, and cash the rest.
3. Fill up your envelopes according to what is on your budget. If you have budgeted $400 for gas one month, put that in your envelope, and not a penny more.
4. Use your envelopes for the purposes you have defined and nothing else. When the money is gone, it is gone. You are done spending for that envelope or category. This means no visits to the ATM. That won’t matter anyway because you won’t have money in there and your bills will be paid. Doesn’t it feel good?
5. Do not let temptation like debit cards get you. Spending cash seems to hurt more psychologically as you see it physically go away. Make this a habit and get rid of the debit card.
6. It is true you will need to make adjustments as not all bills come in at the same time. Your budget needs to be structured around your pay periods.
7. Have some fun. It will not hurt you to have an envelope just for fun if your budget allows for it. Knowing you have a “no rules” envelope may make things a little less stressful for you and easier to follow your budget.
Once you plan your budget, give it a few months to actually work for you.
Do not get discouraged after 30 days and give up. It will not be perfect the first time, this is new to you, remember?
Plan every penny on paper before the month starts. After you have done this for a few months, you will see that it works.
If it doesn’t, analyze the areas you are struggling with. Rewrite your budget, and continue with your financial plan.
If you are realistic with what you have, you will have the success you are looking for in a matter of time.