Budget Buster #1 - Negative Attitude

It cannot be emphasized enough--a positive attitude about budgeting is essential to your success. If you think of budgeting in negative terms (such as a financial diet, financial handcuffs, restrictive, penny-pinching, a sacrifice, etc.), you are sure to fail, unless you are a martyr or a masochist who finds some strange reward in a punishing experience. For purposes of this article, I will assume that you are neither.

A positive attitude means you think of a budget as a means to an end--a way to achieve your dreams and goals--and that postponing the instant gratification of spending all the money you earn is worth the rewards you will earn in the end.

Budget Buster #2 - Lack of Motivation

What is your motivation for budgeting? Are you trying to appease a nagging spouse? Following the terms of a debt repayment plan with a consumer credit counseling agency? Complying with an agreement made in bankruptcy court? These are not bad motivations, but they are external pressures and will probably not be easy to maintain over time. The best motivations are internally generated: do you honestly believe that budgeting can help you meet your goals?

If you need a little help in the motivation department, see "Top 12 Reasons For a Family Budget." A quick re-read of these will surely inspire and ignite a motivational spark or two!

Budget Buster # 3 - Unrealistic Expectations

What do you expect to gain from instituting and following a budget? Do you think that setting up a budget will reveal large caches of hidden cash or that the budget fairy will sprinkle fairy dust over your budget and magically transform your spending habits after a month or two of tracking expenses?

The reality is that budgeting is an endurance event -- those who stick with it, through thick and thin, will come out ahead financially. Do not expect miracles. What you WILL see if you stick with it is steady, measurable progress towards the goals that really matter to you.

To get us started and in order to set up a monthly budget, follow these five easy steps:

STEP ONE: finding out your monthly take-home pay.

STEP TWO: find out what your expenses are.

STEP THREE: find out how much you spend on each expense.

STEP FOUR: see if your monthly expenses match monthly take-home pay.

STEP FIVE: Balance your budget. This means in your family budget you need to ensure that you are spending matches take-home pay. It might indicate that you have to cut back on spending to balance.

That's it! This is all there is to budgeting. Initially at least. Let us look at these steps one at a time...

1. Finding out your monthly take-home pay.

Your income is your pay, after some money is deducted. Think taxes, insurance and Social Security. Answer the following questions:

• What is your monthly take-home pay?
• Do other people share expenses in your home?

As mentioned before, total all of the households’ monthly take-home pay. This will include all sources of income for all contributing members of the household.

2. Finding out what your expenses are.

This brings up other pressing questions:

• What are your monthly expenses?
• Where does the money in fact go every month?

Most people are surprised to learn that it may go for things that you do not need at all. Writing your expenditures down provides you with the unique opportunity to visualize and find out if any money goes for things that you do not need or want.

Here is a short list of expenses that many people have. Put a check mark next to ones you have, then write down any expenses you have, that are not on the list.

• Necessities like food
• Clothes laundry dry-cleaning
• Car and transportation expenses: gas, oil, parking, license, plates, car repair, train fare or bus fare
• Rent, mortgage payments, heat, electricity, phone, water, property taxes, house repair, appliance and repair, furniture, small items for home, cleaning supplies on the yard care,
• Medical and dental expenses: doctor, dentist, drugs, hospital or clinic.
• Savings: short to medium term for something soon, a future purchase, emergencies, investments.
• Installment payments: car, furniture, appliances, charge accounts, credit card accounts, loans.
• Pocket money, personal allowances, tobacco, beer, wine and hair care.
• Entertainment, movies and eating out Recreation, sports and equipment, club membership, newspaper, magazines, cable TV, records and tapes, DVDs videos and other multimedia, vacation, letters and postage.
• School bills, books, room and board at school, workshops, special training courses, lessons, music and more.
• Donations: church or synagogue, charitable giving, charities, other and gifts
• Insurance: (if not deducted from your pay check): life, health, house, car and property
• Taxes: (if not deducted from your pay check): Federal, state and local income, social security

What other ones could you list?

3. Finding out how much you actually spend on each expense.

This is the hard part, where some thought and effort will have to go into the process to ensure the most accurate information is recorded. This will give a realistic and real-time estimate that is reliable and accurate.

Here you need to ask yourself how much each item on your list actually costs how much each item costs you a month.

The following estimates and guidelines could prove helpful to you as you set up your budget:

• Monthly bills that stay the same – car and rental payments
• Monthly bills that change – utilities, phones and more. Find costs per month for say six months, add them up. Take this number you have calculated and divide it by six (the amount of months) to get your average cost. This is the number you will be using for your budgetary exercise.
• Bills that come every three or six months – the number for every month will be used in your budgetary process.
• Bills that come annually, meaning once a year – divide the amount by 12 months. The answer is your monthly budget number.
• Bills that come more than once a month – food, gas, lunch and family fun. This is a category to watch very closely, as it is a contributor to this “bottomless pit”, we sometimes feel and see our cash disappear into.
• Unexpected expenditures or surprise bills – what you can afford to set aside as a buffer or emergency, contingency fund - (look at the last three years or so and see what kind of unexpected expenses you and your family faced). Use an estimate that makes sense to you and divide the annual number by twelve months to get your monthly number.

4. Finding out if monthly expenses match monthly take-home pay.

Compare your total expenses with your take-home pay. A couple of results and scenarios could be staring you in the face:

Positive result: Income more than expense – you can either spend or save!

Negative result: Expense more than income – spending more than you have, you might have to cut costs and try to save some money to cover the bases!

Whichever of these outcomes you are faced with, knowing is better than not knowing. For some this might bring little comfort and relief, but people in general, find this exercise useful to make an unknown more measurable. It makes us both accountable and wanting to act, faster and that sense of urgency and momentum is just what the budget process needs!

5. Finding ways to balance your budget.

Earlier it was stated that a good budget would mean income would be equal to expenses. Having a small surplus is no guarantee by any means. You might need this to cover and unexpected rise in oil and gas prices or a larger grocery bill due to a party you are hosting at home.

This almost brings the concept home of a sliding scale, flexibility and discretionary buffer categories in budgets to absorb this give-and-take roller-coaster ride that is budgeting.

The good news is whether you are in the red so to speak or just scraping by, managing to save nothing or maybe a little, or even a lot, this process will highlight areas where your attention is needed right away. It gives direction and purpose and assists families to formulate their spending plans, goals, re-visit their needs, dreams and goals.

Balancing the budget is no easy task. Here are a few steps that I can suggest to make your life a little easier:

• Find out how much you need to cut from your expenses
• Decide you can make cuts in your expenses and be detailed
• Re-balance your income and expenses after you've made these cuts

A word to the wise: Do not make cuts in your budget that you cannot live with in real life. It is extremely important to remain realistic and keep your real-time expenses and living realities in the forefront of your mind when you make these decisions.

Some general strategies are helpful in assisting families to set up a budget or budget better.

• The first significant step is to change your thinking about money, shift your attitude toward spending, actually focus on saving money, planning ahead and driving for success.
• Develop a greater awareness of how you earn, manage, save and spend money.
• Awareness of how others will lure, entice and want you to spend your money (advertisers, retailers, and manufacturers).
• To stop participating and playing the “Keeping-up-with-the-Jones’s game,” living with a false sense of wealth and security, while over-extending your self and financial resources, beyond your means. Do not envy others and lust after things that they might have or even worse, get deeper into debt to compete or keep up appearances. It is counterproductive and can ruin lives!
• Delay purchases – learn and do, sometimes without having to buy!
• Set solid financial and budget goals for yourself and your family that you can work on individually and collectively to achieve together.
• Set spending limits and stick to them.
• Do not make ends meet utilizing credit cards, stay away from ATM machines, cash, cash advances, do not cheat on your budget.
• Understand your income – know where the money is coming from and how it varies throughout a one-year cycle.
• Understand your expenses – monthly and irregular, unexpected expenses.
• Set a few realistic financial goals.
• Know your own habits, spending, temptation, and where the areas of risk and exposure are.
• Set up savings and spending mechanisms that work, reserve and growth accounts and have the right number of credit cards.
• Make an income plan – detail is important.
• Plan your obligations and must pays – smooth out large size bills with reserve accounts.
• Plan your necessities and look for ways to economize.
• Set aside pocket money for daily incidentals.
• Create a family allowance to cover entertainment.
• Create a personal allowance.
• Balance and consolidate, wise decisions and trade-offs – agree and stick to it.
• Live happily on a budget.
• Welcome to frugal living mode! Cutting back on living expenses – alternatives for simple living.
• Re-examine why you work and how you live.
• Stop tossing your hard-earned cash away.
• Shopping, overwork, stress and debt (some refer to this as an illness quipped: ‘Affluenza’!).
• Celebrate when you have money left over at the end of the month – indulge a little and reward yourself – rewarding patience and persistence! Not just the doing good and sticking with it.

Budget for special occasions.

When forecasting your expenses, remember to include gift-giving occasions. Mother's Day, Valentine's Day, birthdays, Christmas, and anniversaries are good examples. If you plan to spend money on these occasions, remember to include this in your budget.

Holidays are notorious for destroying budgets. Plan ahead!

Need.

If you did not know you need it, you probably do not. Do not buy things just because they are on sale. If you had no use or want for it before you saw it on sale, then you will have no use for it later.

Lower your utility bills.

Take a few minutes to plan ways to save on bills - 15 or 20 minutes researching lower rates on electricity or long distance can pay off.

What do I do?

I pick up the phone and call each of my utility providers CUSTOMER RETENTION DEPARTMENT (examples: phone, satellite/cable tv, internet service provider).

I tell them that I am considering switching to one of their competitors and looking for lower rates today to keep me as a customer.

Back in 2012, I switched health insurance providers and have saved between $750 - $1,000.00 per year since. The plans were essentially the same.

In 2013, I saved approximately $1,450.00 calling my phone, internet and satellite tv companies telling them I was going to switch to a competitor. They all lowered the rates without argument.

This year (2014) so far I have tacked on another $1,150.00 in savings just by picking up the phone and calling the same 3 companies as the previous year.

Remember: those lower rates you see on tv are not just for new customers. they are for customers that may leave and switch to a competitor too. You just need to ask.

Plan for unexpected debacles.

You car breaks down completely. Your roof caves in with no warning. You need to go to the hospital.

Something inevitably happens and you need the money. These unexpected costs can not only completely blow your budget, but put you in severe debt.

Plan ahead!

Put money aside starting now. Even if it's only $5 per week.

Cut your electricity bill.

You may not be able to pick up the phone and get batter rates here (as these companies tend to be local monopolies), but you can go out and purchase a smart thermostat.

With these thermostats (some even have an app!), you can control when your heat or A/C are turned on and off.

This can save you a lot of money per month.

If nobody is home from 9am - 6 pm, why should your heat or A/C be on the whole day? Turn it on from your mobile phone while you are in traffic on the way home.