How many of us truly know how to budget? By that I mean, are we capable of setting up a reasonable budget and stick to it? Personally, I am a whiz at setting up a budget, seriously, I am. I can tell you exactly how much I need to set aside to pay for auto insurance, utilities, food, DEBT REDUCTION, etc. BUT, my biggest challenge, and the challenge that I think most of us face is being able to stick to a budget once we set one up.
Staying true to ones budget is probably one of the biggest stumbling blocks anyone faces when attempting to organize their finances. Quite often the failure is due to being unrealistic or unreasonable in their expectations. By this I mean that setting up an extremely austere budget where no room is left to take care of yourself. Not being able to do the things you enjoy, the things that let you decompress and unwind, eventually lead to frustration and more likely than not, unplanned spending. I think this is one area that is often overlooked when setting up a budget. There has to be a little left over to take care of yourself and to allow yourself to periodically relax and engage in the hobbies or activities you enjoy. Unfortunately most hobbies and leisure activity have a cost associated with them, so not budgeting for these items is not only foolhardy, but a first step on the road to failure in one’s personal finances.
One other cause of failing in an attempt to live within a budget is unexpected expenses. Tires that reach the end of their lives can strain even the most fanatical budget keepers. One interesting aspect of a situation like this is that most of us know that those tires will have to be replaced soon. Yet we don’t plan for it! It’s easy to kick the can down the road and deal with it when you no longer have a choice. This doesn’t just apply to tires, any major purchase of expensive consumable can apply. Printer Ink or toner, filling a propane or fuel oil tank, routine car and home maintenance are examples of what can be expensive budget busting expenditures. Emergencies can have an even greater and more profound impact on your capability to keep a budget. Having a major household appliance or worse, a home heating or air conditioning unit fail can be catastrophic to anyone trying to keep a budget who didn’t plan on or keep an emergency fund to handle situations such as these. Creating and keeping an emergency fund is an essential part of creating a realistic budget.
Budgets and Vice
Speaking of vices, I can personally attest to the drains to my personal budget that both smoking and premium Coffee have caused me in the past. I’m a recovering Starbucks $8-$10 a day coffee drinker. I haven’t quit the coffee altogether, but I’ve trimmed it down significantly! I struggled with both of these vices financially because I essentially used pocket money for both. What really helped me take control on these items was making them part of a written budget. I did that during 2012 and towards the end of the year, seeing exactly how much I had spent on both was an eye opener and forced me to change some of my behaviors.
Setting Up a Budget
Setting up a budget consists of several key steps. I’ll have a series of articles later “How to Budget” that cover these steps in more detail but in essence here are the key concepts and steps towards creating a budget:
- Select a budgeting method and tool (I’ll have a complete article on this topic
- Identify your monthly obligations (All of them)
- Setting up a payment plan in a priority order for your outstanding debts, there will be a number of articles on this.
- Identify your income streamsImplementing and keeping to a budget
- This will include identifying other sources of income or money that you may not be currently using
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