Finance
3 Steps to Personal Financial Success - Part II: Budgeting
Spending Habits
As consumers, we spend. We spend on things that we need but more so on things that we don't need, but want. Some of that stems from the fact that we refuse to deny ourselves pleasure and we don't want it now...we want it yesterday. Marketers know this and they prey on it. They show you the product in all its glory, all of the benefits you can get from it, and what others say about how quickly they saw results. Like lambs to the slaughter, we fall for it, make the purchase, use it twice, see no results, and then let it sit in the closet for the next five years (oh, never mind that you are still paying for it!).
Now don't get me wrong, I like to spend money myself, when I have it to spend. And of course, live your life to the fullest! That being said, you still have to exercise caution when it comes to money. Living your life to the fullest irresponsibly now may have you tied to the ball and chain of debt in later years when you should be debt free and enjoying your grandkids or shuffleboard in Florida.
Your spending habits can generate an undesireable future for yourself. Would you agree? Spending on impulse, spending when you find "deals" that you haven't budgeted for, or keeping up with Mr. or Ms. Jones are terrible spending habits. A deal is only a deal when you have the money for it.
For example, say there is a suit for $200 that has been marked down to $100. You purchase the suit on your charge card because you didn't have the cash, but you will be getting paid on Friday (that's called pre-spending). Friday comes and you didn't realize the bills that you have to pay or you want to spend your money elsewhere, so you take advantage of the kind credit card people who allow you to pay just the minimum. You get into the habit of paying the minimum, and add some other charges to your card. A few months down the road...you are still paying for the suit plus the other charges on the card and have doubled the $100 price (the deal!) and ended up paying $100 in finance charges to the credit card company. Who came out on top?
It may sound far-fetched, but this happens all too often and is how people get into credit card and other debts. Their spending habits almost become insurmountable, then they reach out for help be it debt consolidation or worse, cash advance companies. Not that there is anything wrong with cash advance companies, but most people don't think wisely about how to pay this loan back or if the benefit is worth the cost. Then they get caught in the revolving door.
Creating the Budget
Go ahead. You can say it. It's the "B" word. The one word people in debt feel as if they can't do because of the debt that they?re in. Trust me: there is no better time to start. You will never see the light of day if you don't set boundaries to your spending. You will continue to impulse buy if you don't give yourself other choices for your spending. You will continue to buy things you don't need or will not use if you don't create a budget.
Next to the bible or any other religious literature you may have, your financial budget is the next piece of sacred text that you have in your home. Read it. Study it. Eat it. By doing this you will ingrain it into your subconscious. Your subconscious will alert you when you are diverting from the plan. You will feel more power because you are now starting to make informed decisions about your spending. You will be aware of the choices you have (new boots or light bill?). In short you will be able to pass on "right now" and look forward to "a little later."
So how do you budget? Well, you take everything that you spend money on and categorize it. Everything. From apples to zebra slippers, you have to put these expenditures in a category and put a set amount on how much you will spend in that category. Of course, you will need to know how much you bring in on a weekly to yearly basis. Here is a basic example:
| Monthly Income: $2000 | ||
| Weekly: $500 | ||
| Account | Amount To Spend | Due Date |
| Loans: |
Auto Loan: $250 a month Student Loan: $100 a month |
1st of Month 1st of Month |
| Rent: | WillShire Apts: $400 a month | 1st of Month |
| Grocery Limit: | $300 a month | 1st and 15th (go shopping) |
| Savings: |
401k:$25 each paycheck Fed Cred: $10 each paycheck |
10th and 25th 10th and 25th |
| Clothes Limit: | $50 a month | |
| Dining Out Limit: | $50 a month | |
Again, this is very basic. Your budget can be as detailed as you like. The more detailed, the better. If you decide to stop by the store and pick up a stick of gum, include that in your grocery totals. Make lists before you go grocery shopping. This keeps you on track with your budget. You may be able to pick up a few extra things here and there, but you must adjust your budget to reflect, and shuffle your money from somewhere else to cover the expenditure.
I hope I've opened your eyes to a few bad spending habits and have given you enough to jumpstart your budgeting. With just a few minor changes (and in some cases, major), you can be on your way to financial success!
Gordie Prescott
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