Budgets can be an exercise in pain for many people. The sad part is it doesn’t have to be like that, at all.
Building a great budget is simple when you understand what not to do. And what you shouldn’t do first is sit down and make a budget from memory. That just sets you up for a bad outcome and conflict.
Instead, if you listen to this podcast you’ll learn some easy tips you can implement to get control over your money, without creating much anxiety, stress, or conflict at home.
Transcript
Today we are talking about budgets and BOY do I hate budgets.
I know that sounds strange coming from a consumer debt expert like myself, but a typical budget is SO restrictive and if done wrong it can just create a lot of unnecessary stress and conflict with the people you love. Nobody likes to fight over money.
Typically when people sit down to create a budget, what they really end up writing down is their best guess on how they spent their money a month ago.
Rather than being a work of fact, that type of budget is really nothing more than a fictional wish list on how they’d like to spend their money.
University studies have demonstrated that the accuracy of our memories even over just a short period of time can significantly erode. Research shows that people only get about thirty percent of the information correct when they try to recall it just a couple of weeks later. And imagine what the accuracy rate is when trying to estimate spending small amounts here and there.
In a study I conducted I asked people to write down an initial budget and then track their money for a period of time. What I found was that almost eight out of ten were dangerously off on their spending recall. Overall they overestimated income and underestimated expenses.
Let’s be honest here, _ how many people really track their money and know to the penny where it went a month ago? I know I wouldn’t be able to do that.
Instead of making one of those fairy tale budgets from memory, you can do better, and it’s easy.
Coming up I’m going to tell how easy it can be and why you don’t need anything fancy or expensive to build the worlds best budget that’s accurate.
This is Steve Rhode, your Get Out of Debt Guy from get out of debt dot org, Standby.
To really get a grip on where your money comes from and goes to you need to measure the input and output. Have you ever heard that old adage that carpenters should measure twice and cut once? Well, you need to apply the same wise advice to making cuts in how you spend your money.
To get started, you don’t need any fancy computer or expensive software. No, all you really need is a piece of paper and a pencil.
For the next thirty days just make a list of how much and for what you spent your money for. If you are married or have a life partner, it would be great if they participated in this exercise as well. It’s an eye-opener.
You could go overboard with this exercise and break down your expenses at the grocery store into all sorts of subcategories but for our initial tracking and spending plan there is really no need to do that.
Instead, what I want to accomplish first is just to get you in the habit of recording your income and expenses and learning to categorize them.
I’ll even give you the flexibility to create your own general categories for expenses. You can start with income, rent, utilities, credit cards, etcetera. Don’t make this exercise hard, make it easy and let’s get the data you need. There’s plenty of time to make it harder later.
When tracking your cash I want you to be sure to capture those sodas you buy at work or that on the run meal you snagged from the fast food joint. The most important goal here is not to judge your spending but to figure out where the money is going.
Once you do that, then you can make some exceptionally good educated decisions about any changes you might want to make.
Coming up I want to talk about the best budget to create and how much you should spend for each category, but first I’m are going to talk about the benefits of making a budget this way and how to avoid relationship conflicts.
This is Steve Rhode, your get out of debt guy from get out of debt dot org, Standby.
Budgets can create relationship conflicts, and money issues are a leading source of fights in relationships. But why?
The conflict over budgets in a relationship are primarily due to a fundamental reality. You see, opposites really do attract and if you look at the partners in a romantic relationship you will find that one is the saver and the other is the spender.
Spenders hate to be reined in. For them, spending money is just much more emotionally rewarding. For savers, the act of keeping the finances in check is the general emotional reward. Knowing that, you can see how unconscious conflicts can exist.
So how do you overcome that as you build your budget? It’s actually simple.
I’d bet that it’s the saver in the relationship that will be the driving force behind creating a budget. The spender will resent the process. So start the process of tracking your cash without demands that cuts have to be made. Focus on just collecting the data first and once a months worth of data is down on paper, then talks about changes can begin.
What your spending partner doesn’t know is that simply by recording where their money is going it will reduce their unconscious spending by about 20 percent. The simple act of awareness in recording spending will start that hidden process of slowly evaluating expenditures from wants to needs.
Once you’ve got the 30 days worth of data and you’ve categorized it, how much should you spend in each major life category? Coming up, I’m going to talk about just that.
This is Steve Rhode, your Get Out of Debt Guy from get out of debt dot org, Standby.
A question I’m often asked is how much should I spend for groceries, housing, utilities, entertainment, eccetera. The reality is it absolutely doesn’t mater. Spend whatever you can afford to on the things that are the most important for you.
Ultimately the goal is to create a plan on how to spend your money that allows you each month to save some money, invest, meet your expenses, and enjoy life.
Building the best budget is all about fitting your life within your income. If you come up short each month, the data you tracked will be the solid foundation you need to make mutually agreed choices about what you’d like to cut out or cut back on.
When you and your spouse communicate and decide those things together, you’ll build a budget that’s really going to work for you.
This is Steve Rhode your Get Out of Debt Guy.
If you want more advice or you want some free help, be sure to visit me at Get Out of Debt dot Org. And while you’re at the site, don’t forget to subscribe to this podcast for even more practical tips and advice.
“Building the best budget is all about fitting your life within your income.” I totally agree. A budget isn’t a one-size-fits-all kind of thing. And getting into the habit of budgeting is really difficult, so taking small steps by recording and taking notes really helped me become more conscious of how much I was spending and on what.