Have you ever sat down and wondered where your money goes every month? Do you have some money left over at the end of the month or do you have month left over at the end of your money? We hope your answer is the former and not the latter. In a 2015 survey done by Nielsen.com, 4 out of 10 respondents (total 1,665) revealed that they are living from paycheck to paycheck. If you’re constantly running out of money before your next paycheck you’re undoubtedly adding on debt because that would be your only option – assuming you can’t just quit spending money altogether for whatever number of days are left before you’re paid again. Whether you’re using credit cards or a personal line of credit doesn’t matter. What matters is that you’re piling up debt and if you continue to do so you’re headed for a financial meltdown.
It’s critical to have a spending plan
It’s important to have a spending plan and by this we don’t mean just a budget. Too many people create a budget, stick it in a kitchen drawer and then forget about it. In some cases they might have tried to stay on their budget only to find out it wasn’t realistic, became discouraged and gave up on it. The hard truth is that creating a spending plan can be a daunting task so where you start?
Get an online tool
There are a number of online tools and smart phone apps that can take some of the work out of this task. If you go to the site GoodFinancialCents.com you’ll find what it considers to be the Top 10 Best and Free online budgeting tools. Obviously it’s impossible to beat “free,” and the easy-to-use tools you’ll find on this site could be just what you need to get a handle on your personal finances. There are also smart phone apps such as Mint.com that will track your spending for you, create budget categories and then send you an email alert if you overspend in any of them.
Where to start
Before you go online and choose one of these tools or a smart phone app you need to learn the mechanics of a spending plan and how to make it work. The best, first step is to get a spreadsheet such as Excel or the free program Sheets from Google. You’ll also need a calculator, paper and a pen. If you’re married, it’s important that your spouse be on board. If you’re single, just go find a quiet place to work.
How to set up your spreadsheet
From the top of your spreadsheet to the bottom on its left side number each line from 1 to 31 representing the days in the month. At the top of your spreadsheet from left to right label each of your columns based on your spending categories. This might include utilities, auto payments, cable TV, wireless, rent/mortgage, clothing, childcare, groceries, eating out, charitable giving and entertainment. Of course, these categories should be customized on how you actually spend. And don’t forget seasonal categories such as golfing or skiing. If you participate in one or more of these activities, be sure to leave room for them.
What about those “little expenditures”?
You also need to think long and hard about those little expenditures that don’t seem to matter. Do you get a drive-through cup of coffee every morning or a soda at your afternoon break? If you do, include these as one of your categories. When you add it up you might be surprised at how much that daily cup of coffee actually costs each month.
Here comes the time for a little discipline. For the next month, you must record every day what you spent in each of your categories to get a better picture of where your cash is going. This won’t be a lot of fun but by the end of the month you’ll have an answer to the question we posed earlier of where does my money go.
Need more help?
If you would like some additional help in creating your budget here’s a video featuring the financial guru Dave Ramsey with more details.
Time to set some goals
Now you’ll need to do some serious thinking about your goals. What are your priorities and those of your family? What do you dream about? How will you achieve your goals given the restrictions of your income? Now that you know where your money is going each month you can create a spending plan to help you realize your goals – whatever they might be.
For example, if you have incurred debts your first goal might (should) be to pay them off. Alternately, you might want to increase your retirement savings. On a more short-term basis do you want the occasional weekend camping trip or a family vacation? How about creating a fund that would be a cushion against unexpected emergencies like a serious illness, an auto accident or unemployment? Most financial experts say you should have an emergency fund equivalent to at least six months of living expenses. If this sounds too daunting try for at least three.
A reflection of your priorities
The bottom line is that your spending plan should reflect your priorities. If your top priority is to pay off your debt you should probably have a plan where you are spending at least 10% less than you earn so that you can use the extra money to pay down your debts. But this is an area where you don’t want to have a spending plan that is so draconian even Uncle Scrooge would give up on it after just a few weeks. In other words, it must be realistic. An article published on GetRichSlowly.org revealed that some people fail at their budgets because they failed to make it realistic. Try not to underestimate your expenses so you can successfully follow your budget.
Mistakes will be made
Most people make mistakes when creating a spending plan and it’s likely that you won’t be an exception to this. But if you create a plan that does reflect your lifestyle and your goals you are more likely to adhere to it. If you do make mistakes, don’t despair. Just go back to your plan, make the necessary adjustments and move on. Even though creating a budget and a spending plan can be a tough task the rewards can be amazing. You’ll have your spending under control, you’ll be working towards your most important goals in life and you can relax knowing that you never again will run out of money before you run out of month.
