It’s the beginning of the year, most of us take on a new year’s resolution and some may choose to start a budget as their new year’s resolution. It already February, how is your budgeting coming along? In fact, some may have tried budgeting, but it didn’t work out, while others couldn’t even comprehend the thought budgeting because it they thought it would prevent them from doing anything fun at all. There are still some people who believe budgeting is only for those who are in financial trouble.
Well, before we discuss about what budgeting can do, let’s see what budgeting are not. Budgeting is not merely a set of knowledge you acquire although it is a starting point. Budgeting is not just a bunch numbers that you entered into some fancy budgeting software but never follow through. Budgeting is not merely preventing yourself and/or your family in doing what you enjoy doing. On the other hand, proper budgeting can turn your lifestyle from living paycheck to paycheck to living with some financial security because you have your emergency funds in place. It takes you from living in debt to living debt free; it can transform some of your wishful thinking into realistic goals such as an exotic vacation in Hawaii or starting a small business without getting into debt. Why? That’s because budgeting starts with our attitudes toward not only money, but also resources. The first one is the attitude towards our needs and wants. In other words, if your prospective of your needs and wants are right order, in less critical situations, you don’t necessary have to have a written budget because it has already been engraved in your mind.
So what are your needs and your wants? Most of the time, if not all, you often hear people say something like these, “I need that new car”, “We need that new phone” , “I need that new dress” and etc. We tend to categorize everything as “NEEED” without realizing all of the above statements are actually wants. How do you distinguish between needs and wants? In 1 Timothy 6:8, “having food and clothing, with these we shall be content.” With our current situation, perhaps it is reasonable to add shelter and transportation a well. In high school, in Commerce class, we learned that needs are necessity, basic things that we have to have, whereas, wants are luxury desires which would be nice to have but not necessary. For example, food is a necessity, but eating out is not a necessity; buying a car may a necessity as a form of transportation to go to work, but buying a new car is not a necessity.
Having understood the difference between needs and wants, you can now dive a little deeper into your current financial situation.
In high school, I never understood why I had to learn history. They are past events that had taken place, and we could not change it even if we wanted to, I argued. I now understand that by studying the past, we learn not repeat the same mistake and follow the example of those who did it right. Likewise, by studying past spending pattern, you can see which area needed the most attention, and which areas were neglected most.
The next step is to find out your obligations, here are some of the major categories:
Debts (credit card debts & other past due bills)
Child care/ School
Misc. (toiletries, hair cuts, gifts, etc.)
Feel free to remove or adding categories to suit your situation. However, as a Christian, I believe that Tithing is the most crucial responsibilities we and should never be eliminated. A separate article I wrote a while back if you prefer read more about it.
Using Microsoft Excel, first of all, enter your monthly gross income. Next, enter the above categories and begin tracking your past spending pattern using your bank statements and/or credit card statements. If you don’t keep record such as receipts for grocery for example, then start keeping track of your current spending for the next month or so. Certain expenses such as auto licenses or auto insurance, occurs only once or twice a year. Pay attention to when those expenses will take place because in the beginning, you will have to juggle the funds transferring from one category to the next.
After deducting all the above expenses from your gross income, you may or may not have anything left from your gross income. In fact, some could also show a negative amount. If yours show a negative amount, you know that expenses in some of the above categories must to be reduced. It will be up to you to decide which categories need cutting and which categories need adding. If you are married, both, husband and wife must agree to the budget you have set up, otherwise it will cause more harm than good to your marriage and family.
Since, budgeting is a huge topic to explore, God willing, I hope to bring you next topics closely related to budgeting. However, if you have gone through budgeting and would like to share your story, please do so below. If you have questions, don’t be hesitant to ask.
In the next article, I will share another attitude that will increase your success in budgeting.