When it comes to buying a big ticket item $200 or more, we often purchase these items on credit, only because we normally don’t have alot of cash on hand to buy these items. Financial institutions have made it easy for you to buy things you normally would have to wait to save the cash for. However as much as the financial companies are there to give you the credit when you qualify, you are the only one who really knows if you can afford the extra payments. Getting into debt is often the result of bad habits which we carry on until we have no choice but to take a step back and restructure our financial habits. One such way of restructuring your finances is by creating a budget.
You may be wondering why should you make a budget and how is that going to help you get out of debt? Well the first thing is if you are at a point where you need to set up a budget then you are probably feeling the stress of your financial spending therefore by having a budget will put financial picture into perspective very quickly. Now there is one very important thing to understand regarding a budget, it takes some serious committment and self control in order for your budget to be a success, as well you need to be realistic in the budgeting process.
Contrary to what most of you may believe and I am saying this as a result of the feedback I have received to date, budgeting is not that hard to set up. It does take time, especially when for the first timers, but like anything else it gets easier with practice and becomes second nature after a bit of time. It can be an exciting process but it can also be very frustrating as you are taking a real picture of your financial health. Like any health checkup there is the risk of bad news – basically put a serious reality check.
One of the main things you need to understand is budgeting is nothing more than writing down what you have for payments, bills, charity etc – basically all of your expenditures for the month and then writing down how much real income you have coming into your household each month.
The first step requires a bit of detective work, but it is well worth it in the long run. Take a piece of paper and write down all the expenditures you have every month. One of the best ways to do this is gather up your bank statements, receipts, your checkbook register and even bill stubs if you keep them. One thing that worked great for me when I was trying to find out why I had little money left every month a few years back is making sure I had a receipt for every thing I spent my money on. When it wasn’t possible to get a receipt I would write down in a notebook I carried with me, the date, the amount spent, where I spent it and why. (sometimes the why is self explanatory)
To properly complete the first step with accuracy you really should take the first month to go through the exercise of gathering receipts and notes on how you spend your money. If you are doing this as a family, it is important to not pass judgement on anyone during this setup period – basically it is business as usual. More than anything you need to have an accurate accounting of how much money is going out so to play with the numbers is only cheating yourself. Remember this budget process takes committment, self control but it also means you have to be honest with your family and yourself. Cheating yourself also means your cheating your family!
In our next message we are going to be discussing the second step to budgeting, for now think about what we have gone over today and we look forward to seeing you in part 2 on creating a budget.
