The first step in budgeting is to create a spending plan. Using a spreadsheet program, such as Excel, is an excellent way to plan expenses and spending. It allows “what if” analysis; by simply changing the expense number, we can see immediately the impact on our finances.
Take a good hard look at your “discretionary” expenses. These are the only expenses which can be cut without strong lifestyle changes. The following expenses are easy to adjust: excess tax withholding, life insurance, 401(k) deductions which are not mandatory, clubs and recreational activities, cable TV expense, dining out, gambling, etc…
We must be careful to distinguish needs and wants. We all want many things, but need far less. Keep in mind that Money = Time, and Time = Money. The more you ‘want’, the more you will spend. The more you spend, the more time you must use to acquire, maintain, and pay for possessions.
Impulse buyers have more bills than they can pay, and have to spend more and more time working, just to stay afloat financially. They have little time for themselves or family. Health and relationships break down, just as possessions do if they are not maintained. The impulse buyer ends up tired and broke.
Don’t get distracted from your spending plan by retirement concerns or worries about health, rising expenses, changes in family situations, etc. A good plan is a good plan, no matter whatever else happens.
Realize that a spending plan is ultimately what you want, and what would be best for you and your finances. As we live in an imperfect world, it may take a while to get reality to match your plan. The plan can also be adjusted, as it merely establishes a target rate for spending. When in doubt, estimate income low, and expenses high.
How can we budget for variable expenses such as utilities? Use an average from the last year, and don’t forget to establish an emergency fund with a spending plan that allows a little bit of savings each month.
If you want a free excel budget spreadsheet, please do not hesitate to contact us. Take the time to create a budget…you’ll end up worrying less.
Recently I have posted on my blog a series of 6 videos which address the mechanics of budgeting. Interested? Watch the following: Planning part 1. If you feel that it’s helpful to you, go on to the next: Planning part 2. After, go on to part 3, part 4, part 5, and part 6.