A Budget That Works - Part 1
The simple word “budget” can illicit strong emotions in many of us. For some, a budget is a beast we are a slave to each month. For others, it is that word that causes us to grimace because we know we should have one but can never seem to get around to it. You then, of course have the fortunate few who wouldn’t leave home without it and will swear it has changed their financial life. Which category are you in?
A common misconception is that a budget is a spreadsheet, a software program or some combination of cookie jars and envelopes, all of which puts the proverbial cart before the horse. We then judge ourselves as successes or failures based on our record of maintaining the particular system we have created. If we have gotten to the point of feeling enslaved to our budget, then we in many cases have lost sight of its ultimate purpose.
In financial terms a budget is best defined as an advance spending plan. If a budget is a plan, then the most important thing I need to consider is what am I planning for – what is my goal?. Your purpose could be just to make ends meet or to make progress towards longer term goals. This outline contains the key steps to consider when developing a budget:, (Note that choosing the method of your budget is the last step.)
- Where are you now? Do you have an idea of how much you currently spend?
- What needs to be accomplished? Do you need to save for a long term goal or just avoid going into debt?
- What needs to happen? What, if any, changes to do you need to make?
- How are you going to track your progress?
Failure to answer questions 1-3 will likely only result in question 4 becoming a frustrating, if not useless, exercise. A budget is simply a tool. You must know what you are trying to accomplish before determining which tool will work best. In October, we will look at what some of our readers had to say regarding their experiences. In November, we will look at question number 4 in more detail.
Planning Tips
Below are some tools related to the first three steps of budgeting that you may find helpful.
Step 1
Building a budget (practicalmoneyskills.com)
Build Your Budget (kiplinger.com)
Listing Expenses (money.cnn.com)
Income and Expense Worksheet (kiplinger.com)
Step 2
Setting Priorities
Lifestyle of the Rich & Worry-Free
Goal Planning Weekend for Married Couples(PDF)
Goal Planning Weekend for Singles (PDF)
Step 3
There is not much material published when it comes to specific expense category guidelines for a budget. The bottom line is that all the expense numbers cannot equal more than income numbers unless you want to spend your savings or go into debt. You must spend less than you earn if you are going to make long term progress. Keep working at it. You can adjust the guides below based on your situation. There are other budget guides on the Crown website in the library section but the income ranges are limited.
Guideline Budget for a Family of 2
Guideline Budget for a Family of 4
In
the News
September 11, 2001 certainly changed the world as we know it. Many people believe that it is not a question of whether or not we will have another terrorist attack, but when. Even more unsettling is the possibility of an attack that would seek to influence our presidential election in November much like the one that occurred in Spain. An obvious question arises when thinking about another attack - “What will happen to the investment markets?” Mark Hulbert (a respected financial journalist) offers some thoughts on this in the article below.
Thinking the unthinkable
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