The Value of Learning to Budget

01/25/2021

By: Sharon Brooks, Family Trust Financial Counselor

The Value of Learning to Budget

As a Certified Financial Counselor, some of the things I often hear are "I was never taught how to budget" or "I've never budgeted in my life." It can feel like a vicious cycle. You want to do better with your finances, but you're not sure where to start. So, you do what you've always done, spend, and the cycle repeats itself. Let's learn how to end that cycle.

Start by making two lists, a debt obligations list and a needs/wants list. What are your must-haves (needs)? What are some things you'd like to be able to do or have (wants)? Remember to include those payments on auto-draft and payments you only make on an annual, semi-annual, or quarterly basis. Also, remember to include savings on your lists. Now, prioritize those lists in order of importance. Once you have your lists completed, look at your transaction history. Do you spend more on needs or wants? Do you pay your bills on time? Are you barely scraping by on paying necessary bills but have an unrealistic amount of wants in your transaction history? Are you making savings a priority?

Make a habit of setting spending limits for yourself and track your spending. For example, you know how much your fixed payments are each month. These would include but are not limited to rent or mortgage, car payments, auto insurance, etc. Then set an amount you can afford for flexible expenses such as groceries, gas, dining out, etc. Again, be sure to include things you pay on an annual, semi-annual, or quarterly basis. For instance, if your automobile's property taxes are $120 per year, add that to your budget and save $10 per month towards that bill ($120 year/12 months = $10 per month). When it is due, you have the money for it without pulling it from another item in your budget.

When it comes to budget deficit or paying down debt, there are two routes you can take. Either increase your income or decrease your spending. Getting a second job sounds simple enough, but it is not always possible or practical. However, if that is a good option for you, you may want to consider it. For many people, decreasing spending is an option. Look over those items you can eliminate from the budget, or at least reduce for the moment. Budget changes don't have to be permanent. Short-term changes can have a long-term impact. You can always revisit the priority lists and make changes as necessary.

Don't get discouraged. Learning to budget and track your expenses takes time. Things will come up, and it most likely will not go perfectly the first month or even the second. On average, it takes about four months to get your budget adjusted correctly and get into the habit of tracking your spending. In today's 'have it all and have it now, instant gratification world,' learning to budget, save, and wait for some things can be difficult, but it is a must if you want to manage your money well.

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