Step 3: Building a Budget for Busy People

In Step 1, you created a list of every account you have - both assets and liabilities.
In Step 2, you checked your credit report to make sure everything was correct.

Now that you have a handle your current and past financial transactions, Step 3 involves creating a plan for future transactions. Having a plan is critical to getting your finances on track. There are thousands of cliche statements about having a plan - failing to plan is planning to fail, a man who does not plan long ahead will find trouble right at his door, a good plan today is better than a perfect plan tomorrow.

Ok so you get the point. Now, some people call their financial plan a budget, some people who don't like the word 'budget' call it a spending plan. Call it whatever you like - the important thing is that you make one!

Luckily, I have found one of the best (and easiest) ways to create this plan. Go to this website and download the spreadsheet by Michael Ham. Fill in as much information as you possibly can - income, debts, retirement goals, plans for buying things in the future, utilities, health insurance (if you are lucky enough to have it) - anything you can think of. If you think you will die without your "eating out" money, or going shopping, by all means add it in. The purpose of creating a budget is not to deny yourself the ability to spend money on things you enjoy. The purpose is to make sure that you can afford the things you want to do and aren't going into unnecessary debt to finance your lifestyle.

Don't forget to budget for emergency savings, either. Without this cash buffer, you are all too vulnerable to unforeseen problems and emergency expenses, which can make you all too dependent on credit cards, or worse, pay-day-loans. You need to have cash set aside in case your car breaks down, in case the air conditioning or heating breaks, or whatever else might happen.

Now, if you are anything like me, the first time you enter your information into the spreadsheet, you'll be in for an unpleasant surprise. If you haven't been saving for retirement, and you haven't been saving for an emergency fund, and you have loans in forbearance, you've probably had more than enough money to finance habits like going out to eat with friends, buying nice wines, shopping - whatever the case may be.

But if you really want to get a hold of your financial future, you need to be realistic. The spreadsheet has a little number at the top that will tell you how much of your income you have left on a monthly basis. If this number is in the red, you are financing your lifestyle through debt - which is simply not an option. You need to play with the numbers - perhaps spend less on restaurants or shopping in order to build up a cash buffer or save for retirement. The loss of the instant gratification of a nice dinner will be more than made up for by the peace of mind you will get by knowing your financial future is protected.

Like that proverb says, a good plan today is better than a perfect plan tomorrow. Even if your situation changes, starting with a plan now is the best thing you can do. You can go in and change your budget every month if you want, but the important thing is to know how much money you have coming in, versus how much you have going out. If you like going to lots of sporting events or concerts, and wonder why you are always scrambling to pay the rent or your credit card bill, this will help you figure it out.

Try to stick to your plan for a month, and see how it goes. Planning for the future is the best way to get ahead!


Post a Comment