When you hear the word “budget,” what do you think of? A lifetime of restraint? Impossible financial rules to live by?
While budgeting does take discipline, it doesn’t mean your life has to come to a halt. On the contrary, it’s a way of opening yourself up to financial freedom in the long-run. Johns Creek resident Patricia Stallworth, author of Minding Your Money and creator of the Minding Your Money Seminar Series, is this week’s Voice of the Expert. With this advice, she’ll help you understand budgeting, set goals and reach them.
Q: Is budgeting a bad word?
A: Budgets have always gotten a bad rap, but if you have goals you want to accomplish, they are a great tool because they allow you to allocate your money in the best ways to achieve them. Without a budget, money can easily slip through your fingers or just disappear without a trace.
Q: Some people equate budgeting to just having a little money left at the end of the month. There’s more to it than that, right?
A: Basically a budget tracks how much money is coming in, how much is going out, and where it is going.
Q: What’s the first step in creating a budget?
A: To create a budget simply add up all of your monthly income then allocate it to savings for your goals, your household expenses, and money for your own personal use. You can create a budget using software such as Intuit’s Quicken, you can get a template off the internet, you can create an Excel spreadsheet, or you can keep one in a journal. The vehicle you use is not as important as the act of developing and using a budget.
Q: Is there a suggested process?
A: Track where your money is going. Write down everything you spend and also review your statements, receipts, and checks so you’ll have a better grasp of your spending habits. Next, break your spending into categories (rent/mortgage, food, recurring bills, etc..). Once you have a list of all of your expenses, calculate the average monthly amount. Then, calculate all money coming in. Now, for the moment of truth. Subtract your expenses from your income. If you are spending more than you’re making, you need to make adjustments.
Q: To be frank, that sounds like a lot of work and a lot of sweating over every penny.
A: Let’s keep it real, not everyone is going to keep and use a detailed budget. If this sounds like you, a great shortcut to use is the ‘10-10-80 Formula.’ The ‘10-10-80 Formula’ allocates 10 percent of your income to savings and/or investments, 10 percent to charity (or a total of 20 percent to savings and investments), and the remaining 80 percent to your household expenses. This formula gives you the benefits of a budget without all the detailed work, and it allows you to save first which means that you have money to put toward your goals
Q: Is there anything else we should be doing?
A: Regardless of the type of budget you decide to use, always keep a close eye on your expenses and look for ways to decrease them. Remember, the lower your expenses, the more money you will have available to put toward your goals, and the quicker you will get to the finish line!
Q: So, a budget isn’t a death sentence?
A: No, not at all. Include some ‘fun money’ in your budget, otherwise you may have a difficult time sticking with it. I believe you can have it all, but maybe not all at the same time. I will admit that creating a workable budget takes time and it can be challenging, but it can also be one of the best tools you have available to create a secure financial future so don’t just brush it off without giving it your very best effort.
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