Guest Post: Budget Is Not A Four Letter Word by Jeremy Edmonds of Strength In Numbers
Ewww. That word just stirs up images of restriction, control, and a lack of any fun at all. Contrary to popular belief budget is not a four letter word. That four letter word I mean? DIET. Now diet itself has gotten a bad rap anyway as its literal meaning is “the kinds of food that a person eats”. A budget is the same thing. It’s just a plan for what your money is consuming. Even if you want to say it’s restriction there is a key word to note… “a special course of food to which one restricts oneself”. Again the same is true with a budget. It can merely be a certain restriction you put on yourself.
Before we go any further I wanted to break down this false perception. You need to realize one thing: A budget is merely a fence. You made it. You control it. You can even disregard it and bust it down if you want… at your own risk. Without one you will wander all over and even off your property. Make no mistake you are in control. The real rub comes when you try to live inside that fence. That is the true challenge. More on that at the end.
But right now let’s talk some practical steps for how to build that fence.
1. Know thy income
My buddy, Zig Ziglar, always said “If you aim at nothing you’ll hit it every time.” Oh how right he is. You need to know your income. What day do you get paid? How often? Etc. Here’s some basic guidelines:
- Don’t budget overtime or bonuses. You can’t depend on them no matter how long you’ve been doing OT. Use this income as extra toward your goals not your monthly budget.
- Know the dates of each pay day.
- Know your pay frequency and don’t incorporate irregular pay.
- Weekly? Budget on 4 checks a month. Use those 5 check months to throw the “extra” check at your larger goals.
- Every 2 weeks? Budget on 2 checks a month. Use the 3 check months to throw the “extra” check at your larger goals.
- Twice a month or monthly? You have the smoothest options. Count yourself blessed. You are in the minority.
2. Give every dollar a name.
Have $4K/mth in income? Give every penny a name. No cheating. No rounding. That “extra” in your account is a license to subconsciously spend it. GIVE IT A NAME. Some tips:
- Don’t depend on the past. Past spending can be helpful to make an educated decision about the future but it is not a budget. It’s an expense report.
- Be proactive not reactive. If you drive your car looking in the rear view the whole time you are going to crash. Think long term.
- Brainstorm the random and irregular stuff. Get a property tax bill every year for your house and car? Split those numbers in 12 and budget monthly for them. Never know when you’re going to need a car repair? Better set aside some money regularly for it and stop depending on your credit card.
- Be rigid. If you set the number (ex. $600/mth for Groceries) LIVE BY IT. Don’t try to work the numbers. Don’t rob Peter to pay Paul. This is 20% math and 80% behavior. Discipline is also not a four letter word.
- Be flexible. Budgeting is a living organism. It’s going to take at least 3-4 months to get it working smoothly. You need time to see trends and even if you are the best budgeter in the whole wide world… gas prices will change! Roll with the punches.
3. Assign those dollars to your pay
So you’ve defined your income and your expenses. Now you need to line them up. Here’s some rules:
Give each pay day its date. Make sure you account for holidays.
- Start assigning bills first. Ex. Get paid on the 1st and 15th and the cable bill is due on the 10th? Make sure to use your pay day on the 1st to cover that bill. Bill due dates lumpy? Call each company and see if you can get the due date adjusted to even them out through the month.
- Make sure to give yourself a 2-3 day buffer with paying bills. Sometimes the difference between when you pay it and when it clears their system can be what causes you to overdraft.
- Assign the rest of your income across each payday to the remaining budget categories that are not bills (ex. Car Gas).
- DON’T BUDGET MORE INCOME THAN YOU HAVE. Remember, if your outgo exceeds your income your upkeep will be your downfall. If you have more expenses than you do income follow the tips in the next step…
4. Irregular income
So maybe you feel none of the above applies to you because you don’t have a steady paycheck. Maybe you are 100% commission based or self-employed. The above still applies to you with some tweaks. Here’s some tips:
- After step 2 rearrange the order of your budget (not the amounts) and prioritize it. Your top 4 should be what I call the 4 walls of your household: Food, shelter, clothing, and transportation. These are essentials. Shelter includes utilities but not non-essential ones (ex. cable). Food isn’t eating out, clothing isn’t Gucci, transportation has 4 wheels and an engine. Again, it’s priorities.
- Draw a line where the income stops and everything below does not get funded or paid. Don’t pay your credit card and not your mortgage. If they don’t get paid this month so be it. You need to provide for your family first. Don’t give into their pressure and know your rights under the Fair Debt Collection Practices Act.
- Save for the lean times. Having a budget allows you to know what your regular expenses are (including those irregular things you need to be putting aside for that we discussed in step 2). If those expenses are $4K/mth and you get a $6K income month save the other $2K for the month you only get $2K!
- Get help.
Now you’ve got some better clarity on how to construct a solid budget (the fence) but there’s still the most important part of the picture; doing it (learning to live inside the fence). That is a whole other newsletter. Here are a couple options to help you going forward:
- www.mymoneywellness.com is a self-directed, self-paced program to help you build the fence and learn to live inside it. It’s $99/yr but you can get 10% off if you sign up with the code: JECTPP10.
- Live in CT or know someone who does that could use help? Attend one of my 90 minute workshops being facilitated this fall for Adult Education in the following towns: Cheshire, Meriden, Wallingford, Hamden, and Milford.
- I’m available for one-on-one coaching (or one-on-two if you are a married couple) and I give a free Skype consultation to everyone. Call me at 860-880-0232 or write me at firstname.lastname@example.org and I’ll be happy to serve you!
I hope you came away today with a new perspective on budgeting and some solid tips you can use to shore up your financial foundation. Now go do something. Take control. You can do it!