Many people immediately try to tune out when they hear the word budget. It evokes images of sacrifice, confinement, and a feeling of living to work, rather than working to live. A budget does not have to feel like a prison. In fact, a proper, sensible budget is a tool for freeing yourself from the weight of your bills, allowing you to enjoy the fruits of your labor without jeopardizing your long term success.
The first step in devising a reasonable budget is to evaluate both your needs and your wants, and honestly labeling them as such. While you're cable internet connection may qualify as a need if it is an integral part of your job, you cannot sneak your HBO/Showtime package into the needs column. Check your bill for these line items and categorize them fairly. Depending on the services available to your area, you can probably even assign a lower internet connection speed to your needs list, and the faster service to your wants.
This step isn't always possible to complete in one session. If you already know that you spend approximately $100 in drips and drabs over the course of an average week, you are ahead of the game, but you still need to list those individual drips and drabs. It may seem redundant if you have no desire to change that number, but do it anyway. Rare is the person who has not been shocked to discover that they spend more in ATM fees on the way to the coffee shop than they do on the coffee, or the person whose stomach churns when they see how much they pay for the daily newspaper that almost always goes straight to the recycling bin after scanning the front page.
There is no hard rule that says you must give up frivolous spending. If touching the front page of that newspaper every day makes you happy, and you can afford it, keep it on your list. Your wants list, that is. The key is in deciding which wants enrich your life, and which wants actually drain your resources, giving you little in return. As you compile your lists, rank each item. You may find that you've been placing some of those lower needs in the wrong category all this time.
A sensible budget should address your present expenses while planning for the future. If the past is still hanging over your head, you have an extra step to work on. Past due bills or large consumer debt must take top priority. Your wants list is irrelevant until you dig yourself out. If you owe the electric company, or you're still paying for your 5-year-old television, you cannot afford to entertain your indulgent side. If you find yourself unable to give up your daily bagel stop in the name of financial stability, you may want to consider adding a weekly therapy session to your needs list. Chipping away at past budget mistakes until they're gone is going to reward you with great flexibility in the long run. Until then, you're running nowhere, fast.
When the past is laid to rest, you can address your goals with confidence. The internet is fully stocked with a variety of free calculators, taking the guess work out of retirement budgeting. The current economy being what it is, I strongly suggest erring on the side of budgeting high, with conservative investments. Tightening the belt today to guarantee dignified golden years is not a sacrifice. Just ask the first retiree you run into today. The worst that can happen with overshooting your goal is finding yourself pleasantly surprised with an ability to spoil your grandchildren or travel the world. Alternatively, relying on luck may leave you relying on others, jeopardizing their financial security.
If you intend to fund college educations for your children, a generous investment in their futures, use the online calculators to project tuition and determine what it will take to get there. This result belongs on your wants list no matter how important it is to you, or how much money you have. Go ahead and make it your top want, but do not give it priority over your needs. There are many creative ways to fund college if you fall short of your goal, but not so many for paying for retirement or groceries.
The number budgeted for your personal future is now listed at or near the top of your present needs list, and your past is nothing more than lessons learned. You've faced the truth about your spending habits, and you've prioritized your responsibilities. With your W-2 or latest paycheck, it's time to calculate the difference between your income and your needs. A negative number means one of two things- You need to go back to the drawing board and get real with defining need, or immediately begin hunting for and working on additional income.
Ego, evening wind-down time, or an active social life should not take priority over your needs list. If they do, you haven't been honest in assessing your priorities. If you have been truthful with yourself, this should be a great wake up call to kick your ingenuity into high gear. This is not the time to be lured into shady money making schemes. You cannot afford to be had. Your needs are important, and you deserve to have them met. If physical labor or mindless, monotonous work, even with low or sporadic pay, is going to help you to bridge the gap, bite that bullet and take pride in providing for yourself or your family.
Hopefully, you've actually smiled when seeing a nice, positive number at the end of the equation. By putting honest thought and effort into your sensible budget, you've freed yourself to take that number and spread it around your want list however you see fit. Perhaps the work you've done on this budget has even inspired you to cull the more frivolous items from that list, placing more value on saving or setting your sights on a want you never imagined possible. If your income is relatively average, it's more likely that you've found yourself able to meet your needs with a modest surplus to use for your wants. Consider that a good thing. While we'd all love to be able to entertain every single one of our whims, there is a real sense of peace that comes from prioritizing our wants and spending our money on the things that give us the most joy and satisfaction.
A sensible budget should not be a source of discomfort. It isn't a matter of simple math and crossed fingers. The time spent devising and implementing your budget is an investment in yourself, and a key to achieving a financially and emotionally rewarding lifestyle. Enjoy it. You've earned it.