One thing is for sure, budgeting money is not taught in school and rarely taught at home. Unfortunately, that is why 78% of Americans live paycheck to paycheck. That has become the normal. Nobody talks about it, not even within their own marriage and family. We buy cars we can’t afford. Live in homes that take up too much of our bring home pay. Eat out instead of cooking at home. We are a mess.
Why Personal Budget Planning Should Be A Marriage Requirement
Far too often, two people don’t even talk about their personal finance issues before getting married. Like I said, it is taboo. Having debt is not only common, it is expected. He drives a nice car, is often the first thing a girl tells her friends. She is graduating from nursing school, he brags to his friends. But neither consider how much they owe on that car or student loans from school.
Just because one, or both, have debt entering a relationship shouldn’t be a complete turnoff to the other. But it should be a topic of discussion when considering their lives together. Do they plan on continuing this out of control spending after they get married? This should be talked about.
Unfortunately, it rarely comes up prior to marriage. They decide to get married. Buy their first home. A perfect start to marriage, and to financial ruin. They have a mortgage, two car payments, student loans, credit cards, personal loans, and they just keep digging deeper. It isn’t necessarily their fault, nobody told them to live on a budget. They just live in debt because their parents did the same thing. They are used to it.
But then comes the stress. The realization starts creeping in that this isn’t working. We work and work and there is too much month at the end of the money. Where does our money go? Why are we always broke? We make good money but we just barely get by. The stress causes problems, tempers flair, arguments are more frequent, they are being held hostage in a financial prison.
Three things could happen from here. They could divorce, which only compounds the problems. They could continue doing the same thing, which leads to divorce. They could start budgeting their money. BINGO.
If they had only known prior to marriage how to budget and become debt free, they would be years ahead and living a stress free, debt free lifestyle. If only they had known. If only we had known. It isn’t too late.
Two Major Components To Living Within Your Budget
Budgeting is fairly straight forward. For a budget to be effective, it must control two things, income and outgo. You simply must make sure that you have more money coming in, than going out. If you have more money going out then going in, you must make some drastic (and often painful) decisions to correct the problem. Sell the car. Sell both cars. Sell the house. Sell a kid (just kidding).
Most people/families are just slightly out of budget if they have been living paycheck to paycheck. They are close, but run out of money before the next paycheck arrives. They have to delay paying a bill until the next check comes in. They have to eat Ramen noodles for a few days instead of your takeout so they can pay the electric bill. So, the good news is most can correct their negative financial balance by incorporating a strict budget.
Your income needs to be at the highest you can get it to, while your outgo is the lowest you can get it to. This isn’t rocket science, but it is a lost art. Our grandparents knew how to budget, but our parents probably didn’t. Since we weren’t taught at home, or in school, then that means we don’t either. So lets dive in to how to make this income and outgo balance out.
Figuring Your Outgo (your monthly bills and living expenses)
You don’t know how much money you need to make without figuring out just how much money it takes you to live on. While there is certainly a possibility that you might need to make more money to live in the state/area that you live in, you won’t know that until you really pin down just exactly what it takes for you to survive. Notice I didn’t say to live the life you want to live, because that is just a dream. Right now, you just need to furnish your needs, not wants.
You need to grab a piece of paper and a pen or pencil. Now list out all of your bills onto the paper. List every bill that you have to pay every month. Water, electricity, car payment(s), housing, cable, internet, cell phone(s), Medical insurance, home and auto insurance, etc. Every single one. Don’t leave anything out.
First thing I will mention is that more than likely, you don’t even remember them all and you surely don’t remember how much each one is per month. If that is true, you have started to realize why you don’t know where all your money goes. You don’t even know how much your bills are. But now that you have listed your regular bills, you need to find out how much each one is and list it beside the name. Take the time to look at your bills and get an accurate amount that each bill is per month. Write them down, no matter how painful it is.
Add them up, and put the total at the bottom of that column.
Now you need to figure out ever other expense you have during the month that isn’t scheduled. Gasoline, car maintenance, parking, groceries, entertainment, clothing, beer money, lottery tickets, hair cuts/salon, your nails, your doctors visits, medications, household items, etc. all the way down to how many rolls of toilet paper and paper plates you use. Everything. List it all out in a column and put an estimate down beside each one.
More than likely, that new column of unscheduled expenses is where your problem lies. We will check and see when we come back to it shortly.
Figuring Your Household Income
This should be quick and easy. On a third column of the paper, list all your income. Your monthly income. Your spouses income. Your child support. Interest income. Wow, that was a short paragraph.
If your income is set, this should be easy. If your income varies, I need you to list your lowest income then below it list the average. You have an idea of how much you normally make, so list that number. Don’t guess, if you don’t know, take out your pay stubs for the last year and average them out. List the lowest then under it, list the average. The highest doesn’t matter because we can’t depend on that number. It is just a bonus above your average.
Do this for your entire household income that you used to live on.
Comparing Your Income Versus Outgo
I want you to take the average income per month from column three and compare it to your scheduled outgo from column one. The income should overpower the outgo. If it does, you know the problem of why you run out of money lies within column two.
You will need to go on a strict budget to bring down your unscheduled expenses to a point that your average income covers your scheduled and unscheduled expenses. You should already be seeing places that can happen. You start with your splurging. Eating out…gone. Nails….gone. Beer money…gone. Movies…..gone. And so on. You should set aside the money for your needs. This would include money for groceries (not restaurants). Money for gasoline and car maintenance. Money for necessary clothing (notice necessary is the key word used). Money for regular scheduled medication and doctor visits. Money for household supplies and other needs. The wants have to go. Every single one of them.
You must adjust your expenses to cover only your needs. Housing, food, medical, transportation, electricity, etc. If you run out of money in the budget, off goes the cable TV. I don’t care what your friends say, you have to turn it off, it isn’t in the budget. Only your needs are in the budget. Wants don’t live here anymore. Once you get your expenses under your budget, the hard part starts. Living on/under that budget.
If you want more needs, you have to make more income. See this article if you want to make more money.
If your average income doesn’t cover column one, you need to make major life altering changes.
You need to immediately start doing making more money. Again, this article will help. But it may have to go even deeper than that. You may have to sell your vehicles and buy a beater. Getting rid of car loans will certainly help. You don’t need a car payment, you want a car payment.
You may have to move to cheaper housing. Downsizing hurts, but having housing that fits your budget is a must. Your housing shouldn’t be a penny over 25% of your bring home pay. That isn’t a guideline, it is a fact. If it is more than that, you are living above your means.
If your car payment or total of multiple car payments is near or more than your housing payment, then you have to sell it/them. It is just common sense. If you make $40,000 per year and drive a $40,000 Tahoe, you have to sell it. I don’t care what your buddies say. You must sell it.
Same goes for everything else on the list. If you are paying too much for it, you have to change it or get rid of it. When is the last time you shopped your auto and home insurance? Time to shop around for a better deal. It takes about 30 minutes to find a cheaper energy provider. Do it. Cut off your $150 cable TV service and watch Netflix for $10. Hulu and YouTube live TV is about $40 per month. Get smart. Start living within your means.
Put It In Writing
You must have a written budget. You need to see where every penny of your money is being spent. When you are informed of the problem, you can come up with a solution. But if you just hide from it, or ignore it, then you will never recover. The pains of living on a budget is overshadowed by the relief you will have when you aren’t stressed anymore. I can guarantee this. You will feel better. Live happier. Live healthier.
We will be coming out with an accompanying review on the latest and greatest budget apps after this article. We like to provide you with a solution to the problem. That is the only way to fix what ails you, or your financial strains, is putting in place a solution to the problem.
So for now, start working on the three columns. Scheduled expenses. Unscheduled Expenses. Income. That is all you need to build your budget.
Be on the lookout for the Budgeting Instructional Guide. It will change your life forever.