Imagine your agency going through an entire year without a budget. Sure, at first it might sound great… no complaints about fuel costs or overtime being over budget. But once reality set in, can you imagine the confusion and hassle?
If the government cannot live without a budget, why do so many of us think as individuals we can? The reality is that most Americans do not make family budgets and this can lead to real financial headaches. While budgeting can be a painful process, it is critically important to controlling your spending and making sure you have the money you want for retirement and other activities.
What's a budget?
Quite simply, a budget is a written plan of how you are going to spend your money each month. Financial guru Dave Ramsey, of whom I am a huge fan, recommends doing a budget each month. The idea is that at the beginning of each month, you sit down and figure out how much money you will make that month. You then assign how much you will spend on each category of your life, ensuring that you cover the necessities and have a little set aside extra for fun and savings.
Obviously, necessities take priority: housing, food, utilities, etc. Next come the regular expenses, such as insurance, healthcare, auto costs, debt repayment, etc. Then finally, you have the flexible expenses, such as going out to dinner, going to the movies, vacations, etc. You need to assign EVERY dollar somewhere to go. Ideally, you will also be setting aside money for the future (retirement, college funds) and charity. If you don't plan your budget, you will find that you have magically spent everything you have every month. That happens to the vast majority of us, and it leaves us in a bind not to mention a little bit stressed about our finances. Budgets help control that and can help reduce financial stress.
I find in our line of work that it is difficult to create an accurate monthly budget at the start of the month because overtime fluctuates so much. One pay period you might have 30 hours of OT, but then just 6 hours the next. Instead, I use a base budget for the whole year then utilize extra OT money for big-budget items or to make extra savings contributions. That's what works for me; it doesn't make it the best system, but it's an adaptation that I can use effectively. The key is you (and your spouse/partner) have to commit to a budget and work together on it. If don't both buy into the budget, then it will be a waste of time and a source of even greater stress between the two of you.
How do I stay on budget?
It's easy to say, "I'll spend $100 this month on going out." The hard part is staying on that program. There are two tips for keeping a successful budget. First, stop using credit cards! Credit cards make it nearly impossible for you to track your spending. As I mentioned in another article, it also tempts you to pay more for stuff you may not need and buy things that you really don't need. Credit cards are a guaranteed budget-buster.
Second, set up an envelope system. The program is a little awkward at first, but once you get used to it, it actually makes the whole budget easier to maintain. Take a stack of envelopes and write a category on each one. The categories will cover everything that you spend money on: Groceries, Gas, Babysitters, Clothing, Church, Uniform Expenses... whatever. Then in your budget, determine how much each week (or pay period) you'll put in the envelope. Yes, this seems a bit silly, but it serves a purpose. See, when you have cash in the envelope then you have money to spend on a specific activity. If you don't have cash, well... then you have to wait until next week.
This system makes you realize exactly how much you are spending on every purchase; the I'll just charge it mentality is destroyed and you feel the immediate pain of buying something in cash. You spend less on the stuff you need and are less likely to buy stuff you don't need. In short, you stay on budget!
Savings
Budgeting for savings is hard; in fact, the envelope system may not work for that. Many of us will be tempted to take money from the Savings envelope when the Dining Out envelope runs low and we are too lazy to cook. So, how do we set aside money for savings or retirement or college?
Automatic deduction! Most employers give you the ability to have a certain amount deducted from your check every week and have it deposited in a specific account. Even if your college savings or retirement savings plan is not through your employer, you can set up an automatic deduction with whoever holds the account. Frequently, you can choose automatic deductions from your checking or savings account for as little as $25 per month. Frequently it takes just a few hundred dollars to start a retirement or college savings fund.
The key to success here is that the money is taken directly out of your check so you never see it. It never comes home, so you are less tempted to spend it.
Conclusion
Budgeting is hard. Budgeting is uncomfortable. But budgeting is a necessary evil for financial health. By planning how and where you are going to spend your money, you take control of your finances. That means your finances do not control you. It also means you can set aside money for fun and the future, and be sure you are actually saving for that - not just spending away your hard-earned money.
By planning and saving, you are not just working for your money - your money is working for you.
