In this column, I encourage you to develop a budget. I acknowledge the challenges of doing so, particularly setting aside money for any expense, before you take money out of your “wallet” to pay for that expense. Hopefully, the following information will help nudge you develop a budget.
N.B: if you get inspired to start a budget, you may benefit from looking at a hard copy or online resources for developing a budget: a budget book, workbook, program, or application. I entered “Help to develop a budget” in the search bar on Google.com and 391 million results appeared, so help is available. Some sites or apps charge a fee, but perhaps spending some money for a budget may be a good investment. Another option is to use paper and pencil for your budget. Larry Burkett (1939-2003), American author and radio personality whose work focused on financial counseling from an evangelical Christian point of view, used paper and pencil. He would say that he “liked to touch his money.”
As you embark on this journey, realize that a budget is a numbers game. It is a handwritten or electronic representation of your income and expenses–it is neither your money nor your bank account. As such, you can move numbers around to help you manage your finances. The goal is that you set aside funds to pay for your expenses(PDF), instead of borrowing or using credit (Stehulak; Carter; Dematteo; and Hill, 2015).
Begin by listing your income—wage/salary, garage sales, interest/dividends, gifts, etc. (Stehulak, et al., 2015). Next, list your expenses. I like to group expenses by categories. For example in the housing category, expenses might include insurance, maintenance, mortgage/rent, taxes, and utilities (which is a subcategory with expenses, such as water, electric, gas, cable, and trash). Examples of other categories include transportation, grocery, entertainment, clothing, pets, medical, and school. You and another person may have similar expense categories, but everyone’s budget is unique.
As you develop categories and expenses, think back on recurring expenses, such as tags for your license plates. You can also think ahead about expenses that are approaching, such as renewing your driver’s license, doctor visits, or vacation. Larry Burkett would remind listeners not to forget categories for gifts, savings, or an emergency.
Now, add up your income, and then add up your expenses. Your income should equal your expenses. “Wait!” you might say, “I want money left over to skydive, this summer.” Instead of hoping and wishing for leftover money to pay for that adventure, add it into your budget. For example, you could open your entertainment category, add skydiving, and start adding money there.
On the one hand, if the total of your income is a greater than your expenses, you could increase the amounts you have listed, and/or add additional categories and/or expenses. Maybe purchase a hot pink jumpsuit for that skydiving event. On the other hand, if the total of your expenses is greater than your income, you have three options: increase income, decrease expenses, or a little of both. You could postpone, for example, skydiving until the summer of 2019, which would give you an extra 12 months to save toward that adventure.
In summary, you never heard me say that you cannot or should not buy something (even a hot pink jumpsuit). Nevertheless, I am suggesting that if you can set money aside for expenses, then you will have money to pay for those expenses, instead of borrowing or using credit to pay for them.
