How to Establish and Enforce a Budget
How to Establish and Enforce a Budget
Part 2 in a 3-Part Series
In my first article, I discussed the importance and inevitability of developing and living with a spending plan (budget), savings plan, and debt management plan. Now that we agree we all must have one, let's discuss each one separately and then give you the tools to prepare one for yourself.
The Spending Plan
This is really actually quite easy because you have to start by listing all of your fixed monthly expenses. Take out a piece of paper now and do that. Include everything you can think of and then total that up. At this point, I have a catch-all for miscellaneous, and that is my average credit card monthly bill. I have to be careful here because many people I know who have a spending problem stop using their credit card, but I use mine for everything because I like to get the miles and I am disciplined enough to pay it off every month.
Accumulating miles on my credit card has been a great way for me to get free airline tickets over the last 10 years. Many of my clients are choosing the credit cards that give rebates and it is important to look at each. You must, however, be able to pay them off monthly and not incur any interest charges for them to make any sense at all. Personally, I have a strict "no credit card debt" policy so I am able to charge my sundry items and some bills to my credit and get the benefit of miles. Again, you can only take advantage of the miles or rebates if you have a strict discipline of paying your credit cards off monthly and on time.
If your fixed expenses exceed your income, you must stop right here and look for ways to cut some spending or make additional income. Knowing that your company offers annual raises is important to consider because it can focus you to achieve that raise and even ask for more. Being specific in your needs helps you focus on your goal. Indeed, the universe has a way of participating in your success. But you must get clear and stretch yourself. What I mean by that is that you must have the desire to be debt-free and to expand your income to meet your needed expenses.
Once you get clear on your monthly expenses and compare it to your income, you can get clear if your focus has to be on making more money, ie., there is a shortfall in your income against your necessary living costs, or if there is some extra income we need to capture and put to work for you in an investment account. These are two different energies...one knowing no matter what expenses you cut, you just do not make enough money; and another mindset that you are making good money but just need to cut back on sloppy spending habits.
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