Basics 101: Creating a manageable budget

Every person (or household) needs a functional budget.  It is especially important for people who are recovering from credit problems or who feel overwhelmed by debt.  Keeping a budget can make or break your financial success.

If you've never used a budget, you might find it a little time-consuming to get started.  And it may mean that you have to take a serious look at your priorities.  (Electric bill trumps cigarettes, for instance.  If you can't pay WE Energies... you may have to re-evaluate the necessity of buying 3 cartons a week.)  Trust me, in the long run it will be well worth it to cut back now.  Once you get a handle on your finances, you'll hopefully have a little extra every paycheck to splurge on the things that make you really happy.

So... you'll need to set aside a little time.  If this is your first time doing this, you'll probably need 30-45 minutes.  To get started, here's what you're going to need:

• A list of your monthly bills.
• A calculator.
• A couple of paystubs (or a knowledge of your pay amounts and frequency).
• A calendar.
  (Hint: Use Google to create a calendar specifically for bills to help you track due dates.)
• A realistic list of how you usually spend your money.
• What do you normally spend on groceries?  Or, do you usually struggle to afford groceries?
• What non-bill expenses do you spend regularly.  (Daily Starbucks visits?  Saturday nights at the club?  Monthly date night with your college friends?)

Once you've gathered all your materials, it's time to get down to business.  I'm going to give an example as I go... this example will be for a single person without a ton of expenses, so it may or may not look at all like the one you create.  (Hint: Budgets frequently need to be revised.  If I looked back on the very first budget I created, it would look absolutely nothing like the one I use now.  The important thing to remember is that there is NO WAY for you to know exactly how your life will pan out.  The budget is a guide, and it should be adhered to whenever possible, but it will also need constant revision.  Don't worry if you have to tweak it next week or next month.)

Creating the Monthly Budget

1. Start with the money you bring in.  For our example, we'll say we get paid approximately $650 every two weeks.  (Hint: If your pay fluctuates from one pay period to the next, use the smallest amount you would expect to get paid for your normal work hours.  It never hurts if your check is more than you were expecting... but it can be hard if your check is smaller than you'd hoped.
   
                       Payday 1 = $650 on July 15          Payday 2 = $650 on July 29
                                               Total Monthly Wages: $1300
   
   
2. Make a list (on paper, not in your head) of your monthly bills.  On the list be sure to include the amount of the bill and the due date.  (Hint:  If your bill fluctuates from month to month, write down the MOST you would expect to pay for that bill.  Once again, it never hurts if you end up with extra money in your budget... but it can be very hard if you underestimate what you will owe.)
   
                         Cell phone = $75 due July 17th          Rent = $300 due July 30th
                Wireless internet = $45 due July 18th          Cable TV = $65 due August 5th
                   Car payment = $185 due July 20th           Heat/Electric Bill = $100 due August 10th
                      Credit Card = $50 due July 25th          
                  Personal loan = $100 due July 28th
   
   (Hint:  If you notice, I arranged the list of bills into two separate lists, based on which of my paychecks have to be used to pay them.  The bills that are due after July 15th are on the left because I will have to use that paycheck to pay them.  The bills due after July 29th are on the right.  Keeping them separate and organized will help with the next step.)
   
   
3. Start with your first paycheck of the month.  In our case, it is July 15th.  We have $650 dollars to spend, and we will need to use $455 to cover our bills.  (Hint: Try, from the beginning, to consider ALL of your bills priorities.  Sometimes you may have to go back and make changes... but ultimately, our bills should never be considered secondary to non-necessities.)  That leaves us $195 dollars to spend on miscellaneous needs.
   
   
4. Now we must look at the non-bill essentials.  These are usually groceries, gas, and savings.  (Hint: Get into the habit of considering savings a non-bill essential.  Saving can be small... it doesn't need to be a whole bunch of money.  But it helps you cover bills if you have an unexpected expense.  It can also help you afford things that you normally struggle to afford... like Christmas or Birthday presents.  And, with most banks, you can use your savings account as overdraft protection to help you avoid fees if your account accidentally goes negative.)
   
                                    Gas = $50         Groceries = $40        Savings = $10
                                                               Total = $100
   
   
5. We have $95 left to spend on miscellaneous needs.  This is where things get tough, because people tend to prioritize their "fun" activities, hobbies, and lifestyles above other things... like bills.  And while I know that your lifestyle is, essentially, who you are (which can make it incredibly difficult to give up the things you're used to), you may need to scale back in order to afford everything at once.  Make a list of all of the "extras" you would normally want to do.
   
             Go to the club twice = $100       Magazine subscription = $10     Shoe shopping = $40
   
   Ok.  We obviously don't have enough money to do all of these things.  So now we have to prioritize.  Different people will prioritize differently... there is no "right" way to do this.  A few points to remember: items like shoes and magazines are NOT necessities.  They can be put aside as "goals" to help you keep money in your savings account.  Then, once you have enough money in savings to afford them, splurge on a pair of shoes.  And, when it comes to going out to eat or bar-hopping, it can be very easy to scale back on the cost.  Limit yourself to one beer or cocktail.  And remind yourself that this is ALL the money you have to last until your next payday.  You will quickly find ways to have fun... without spending so much money.  And it won't take you long to get your life back in gear so that you can afford to let loose every once in a while.  :-)
   
   So, for the sake of our example, we're going to nix the shoes AND the magazine, and lower our allotment for clubbing to $50.  This leaves us a $45 padding.  (Hint: If you are able, leave yourself a small padding.  This is money that you don't just get to *spend*... it is there for a reason... in case of emergency or unexpected expense.  If you make it through your pay period with your padding intact, then you can splurge on something nice for yourself at your next payday.  Or, if you're being really smart, you'll put that money into savings to help jump-start your success.)
   
   
6. Now we're going to repeat steps 3-5 using our next paycheck.  We have $650 on July 29th, and $465 in bills that need to be paid from that money, which leaves $185.  We budget $100 for gas, groceries, and savings (the same numbers as last paycheck).  This time, we'll skip the clubbing and give ourselves $50 for shoe shopping.  We will have $35 left as "padding", in case of emergencies.
   

And with that, you have a very easy budget for the month.  Now all you need is the discipline to maintain your budget and not fall into temptations.  The shoes might be calling to you... but they're not in the budget.  Don't buy them.  If you're very disciplined, using our example budget, you could end the month's budget with $100 in savings.

Now, let's be honest.  It doesn't always work this way.  There are a LOT of families that could not do a budget this easily.  What happens if your bills equal MORE than your wages?  What happens when you budget $100 for your electric bill, but it ends up being $150?  What if you smoke 4 packs of cigarettes a day and are not sure which category to budget this into?  There are a million scenarios that could interfere with the swiftness of your family budget.

Let me just give you this advice:  Re-read my hint above about the fluidity of a family budget.  If you need to change it every week for the next 2 months... that is okay.  If you look at it once and think... "I need to start from scratch"... do it!  That's fine!  If you try to do it and end up in tears because you realize that you're in WAY over your head... that's okay, too.  Find an organization that helps with debt consolidation... or email me at cylestbrooksconsulting@gmail.com for more advice.  We will find a way to make it work for you... and, trust me, you will be so much better off once you get a good, solid budget in place for you and your family.