Until recently, I had always struggled with budgeting. The word itself used to cause me headaches. It was one of the necessary things in life that I felt I would never master. Finally, though, I did. My income is erratic, so I never know exactly how much I'm going to have to work with ahead of time. I always had a general range of probable and possible income, but nothing that would be usable from month to month. However, I always tried to budget that way: so that no matter what, I could afford the basics. This cost me a fortune in late fees and hits to my credit score over the years, since no one can consistently get by on nothing more than basics. Some months I had more bills than I could afford to pay. Since learning about some techniques that other people use to budget, and turning those various ideas into something that could work for me, my budgeting woes are now over, I still have to spend a set amount of time every month crunching numbers.
Working with Percentages
Realizing that even on my best months, needs that include things like housing, health insurance, and groceries take up a little more than half my income, I decided it was a safe bet to allow 60% of my income on any given month to cover my needs. I left 20% for donations and savings. That left only 20% of my income for wants, which includes things like my cell phone and gas expenses. After playing with those numbers, I decide to change my savings budget to a more realistic 15% so that I could increase my wants budget to 25%. Using percentages means I can apply the same general game plan monthly, and just fill in exact numbers as I figure out what they are. If I have extra at the end of the month in my wants fund, I decided to add any overages to savings.
Using cash whenever possible
While cash isn't the norm these days, it's important that I stick to my budget exactly. That means paying cash for everything, excluding bills that must me paid with a card or a check. I've allotted so much for spending money that can be used as a small discretionary budget. If anything is left at the end of the month, it will be added to savings. If it runs out early, I have no more pocket cash. That's that.
Double checking my monthly progress on a weekly basis
By checking my progress on a weekly basis, I will catch any discrepancies before they become nasty surprises like late fees or overdraft charges. I will also get a chance to proactively make any changes that are necessary so that if something doesn't go as planned (and things often don't) I can allot funds where they're most needed, subtracting them from elsewhere as necessary.
Now that budgeting has become something I do on a monthly basis, and something that I view as constantly changing from month to month, I have an easier time making the numbers work for me instead of always having to jump through hoops to make them work at all. My plan is line with the reality of not knowing exactly what things are going to look like next month, but instead of letting that information leaving me financially helpless, I am now financially empowered to a larger degree. Using percentages instead of fixed numbers is easier to apply to various scenarios than fixed dollar amounts. Spending cash makes in impossible to accidentally go over budget unknowingly. Double checking that things are going as planned on a weekly basis helps me track where I might need to make changes to the spending plan during the course of a month. Making changes to the way that I approach the concept of budget has helped free me from financial stress.
More from this contributor:
- Banking & Budgeting
- Personal Budgeting