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For the next few months, I’m doing news stories and blogging about destroying debt. This video and blog are about one of the most important tools for doing it: a budget. But not just any budget; one that you cannot only live with, but look forward to using. Impossible? Read on…
First, watch this 90-second news story I recently shot about budgeting, then meet me on the other side for more specifics.
For more about budgeting, here’s an excerpt from my latest book, Life or Debt 2010.
The perfect budget
Let’s start our search for the perfect budget by never using that word again. The word “budget,” implies deprivation, like the word “diet.” I’m no fan of deprivation. So let’s exchange that term for a different one: “spending plan.” A budget restricts what you do. A spending plan is what you use to make conscious and completely voluntary decisions about how to allocate your money.
So a spending plan doesn’t mean doing without, it simply means paying attention and creating priorities in order to reach a specific goal. (See my story on setting goals here.)
You start your plan by keeping track of where your money’s going. Once you’ve done that, you’re in a position to make decisions about how to allocate your money and spend it according to your personal priorities. And one of your first priorities should be destroying your debt.
So here’s the drill… Start writing down everything you spend; every penny, every day. A lot of this you’re already doing. When you write a check or use your debt card, you’re obviously writing down the amount and payee somewhere, right? When you use a credit card, it shows up on your statement. When you have money taken out of your paycheck, it shows up on your check stub. So when we talk about keeping track of every dime you spend, what we’re really talking about is where your cash is going. The way to keep track of it is to carry around a small notebook and simply make a note of the amount and what you bought whenever you spend cash. You’ll get used to it in no time, and it’s really not that much of a hassle.
Then all you need to bring your spending plan to life is to transfer those numbers to a form, online or off, so you can review it. Where do you get that form? There are tons out there. Here’s a link to about 10 budgeting spreadsheets, including the one I personally made and use daily.
Of course, writing down the money you’re spending doesn’t in and of itself help you find extra money, does it? As it happens, yes. Because when you start keeping track of what you spend, you tend to spend less simply because you’re thinking about it. If you doubt it, that’s because you haven’t done it.
But there are other benefits to tracking your spending. First, you’ll obviously see where your money is going and are then perfectly positioned to see if you can reduce your outlays in any category by harnessing some of the thousands of money-saving tips available on this website and many others.
You’ll also get a feeling that may seem foreign to you right now: it’s called control. Going through life without tracking what’s coming in and going out is akin to driving while texting. It’s distracting, it’s unnerving and it slows you down. Tracking and planning your expenses is having your eyes on the road and both hands on the wheel.
But the best thing you’ll get from a spending plan is results. That’s what makes it, maybe not fun, but definitely tolerable; even pleasant. Whether your goal is a bigger bank balance, a smaller credit card balance, or a trip around the world, the fastest path to achieving it is using a spending plan to fine-tune where your money is going and to measure your progress. Getting closer to what you want every month isn’t a chore; it’s a pleasure.
If you’ve tried a budget in the past and given up, it’s probably for one of the following reasons:
- You didn’t have a goal: You need something to move toward.
- You started depriving yourself: Don’t go on a dollar diet. Do the things you love, just pay less.
- You suffered a budget-buster: Some unplanned expense or loss of income set you back. Expect the unexpected. Be flexible.
- You got bored: Many people start a spending plan when they need one, then give it up when they don’t. That’s a sign you need a bigger goal.
One last thing to keep in mind: if you think you don’t have the time, you think the whole idea seems anal, you think you don’t need to do it because you’re already so great with money… whatever your excuse… you’re wrong.
In my experience there are two kinds of people in the world: those who look rich and those who are rich. Those who look rich don’t plan. Those who are rich do. It’s really just that simple.