Get Started Creating Your Spending Plan
One of the most frustrating things that I have encountered is the overdrawn checking account and the bounced check. When I finally implemented using a budget and being more financially aware of my spending, I could breathe a sigh of relief and know where I was at any point in the month. Now my dollars are working for me. But, that was not always the case…
Does this no-budget story sound familiar?
It was a day like any other, except for one thing. There were two more days until payday. My bank astutley offered the opportunity to set up user-defined alerts as an email or text, so customers could know the status of their accounts. I had defined an email alert to launch when my checking account went below $200. Although I liked to stay connected to what was happening in my accounts, I had no plan to track income timing vs. spending as I went along.
My iPhone was within reach. Since it was close to payday and I knew there were some outstanding checks soon to clear, I checked my email to see if I had received any alerts. As I waited impatiently for the mail to update, I dreamed of one day retiring comfortably with lots of money in the bank. The mail finally loaded. The first email in the list was from my bank. It was an overdraft notice.
I gasped in frustration because I just “knew” I was covered until payday. In my typical analytical fashion I said to myself, “that’s just not possible!” And yet there it was in black and white. This was not the first time, but, I wanted to make it my last. I did not know how to do it. I had no idea where to start!
Does this sound like you? Do you find yourself running short just before payday and not really knowing exactly why, except for the obvious fact that you’ve overspent again? It’s a frustrating place to be over and over again.
If you can truly relate to this story, decide now to take control of your finances and create a budget. There is a way to avoid this pre-payday nightmare. Let’s discuss 5 budgeting principles, which will guide you in creating your own spending plan.
5 Budget Principles
In Budgeting-Building Discipline into Your Spending – Part 1, we explored Principles #1-#2. Here in Part 2, we’ll continue by covering Principles #3-#5.
Check out my FREE download called Your 10 Step Guide to Creating a Household Budget. It’s loaded with details on where to look for budgeting resources. Just click on the FREE download button in the upper right hand corner of the side bar and follow the download instructions.
The 5 Budget Principles are as follows:
What we covered in Part #1
1) Know Your Money Flows: Income vs. Expenses vs. Savings
2) Use Technology for Tracking and Monitoring
Now, we’ll explain Principles #3-#5 in Part #2:
3) Give Your Dollars a Job: Put ‘Em to Work
4) Weigh Immediate Gratification vs. Your Money Goals, and finally,
5) Look Up and Out
Principle #3 – Give Your Dollars a Job: Put ‘Em to Work
Each dollar you receive should be assigned a job. That job is working toward a money goal that you have set. In other words, to use a military example, all of your dollars are your “money soldiers”. Just as in the army, each money soldier has an assignment. They work in groups to meet a common money goal, like “Pay the Mortgage”, or “Buy the New Car”. When your dollars have an assignment to carry out each time they arrive in your hands, then your dollars work together toward a pre-set purpose.
As you direct your dollars, they combine to establish the foundation for your financial goals. You set the priorities, and put the plans in motion for your “money soldiers” to work for you. You can derail achieving your money goals if you have no plan, or spend frivolously. Each moment is an opportunity to balance short term pleasure with longer term money goals.
Principle #4 – Weigh Immediate Gratification vs. Your Money Goals
Daily, you may encounter spending decisions. When you are in the checkout line at the grocery store, you can decide whether or not to buy that pack of gum, or not. When you are window shopping at the mall, you decide what to buy and whether it meets your overall financial goals for that timeframe. I am not saying only spend money if it meets a predetermined money goal. I am saying have goals and work toward those goals. Write your specific money goals down with a specific timeframe in which to meet them. Measure where you are frequently against those written goals. Correct your course as needed.
Principle #5 – Look Up and Out
Finally, Principle #5 is Look Up and Out. Don’t just focus on today or tomorrow. As you get used to working with your budget, you need to look farther and farther down the time horizon. For example, perhaps starting out, you may only concentrate on the current month. After a few months, you may try planning out two, four, or six months. Keep in mind that you need to build flexibility into your spending plan. Build in a cushion for the unexpected.
Summary
In summary, having no plan is the same as planning for failure. Taking time to create a budget will provide you with the guidance you need to make informed spending decisions. You reward yourself by actually achieving the money goals you have set one by one over time. Gaining control over your spending by increasing your financial awareness will help you avoid those “bad news” email alerts from the bank. Creating a budget is a journey well worth taking!
Please tell us about your budget stories and advice in the comments. Tell us what tools or methods you use to manage your spending? It’s our chance to learn from one another.
