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Sunday, January 10, 2010

1 + 1 = 2

That simple equation, one we all learn as kids, is the basic formula anyone needs to remember when talking budgets.

I was originally going to post about one of my new years resolutions, Reducing Debt, but then I realized that before anybody starts talking about reducing debt, one needs to address his or her own budget.

And just like resolutions, budgets should be specific, tailored to your life style, and have goals.

If you make a resolution, or approach the idea of having a budget, by saying “I’m going to make a budget” and stick to it; though noble, I believe is opening the door for failure.

Here’s why.

Lets say you plan on making a budget to go on that Caribbean Vacation you love to go one each year, and or to save enough to one day buy a house.

Hopefully, if these are some of your top priorities, every time you pull out that plastic or cash, you will think, “do I really need this” or “will this help me reach my goal?”

Which gets me to the basic components of the formula.

Needs and Wants:

Needs are what you have to spend. Fixed costs, bills and expenses that you need or know you will have to pay every month.

Some people put these into basic categories of Food, Shelter and Clothing. However, there are usually more than just these three. Such as; Utilities, Loans, Taxes, Transportation, and don’t forget those once or twice a year bills such as insurance payments.

Wants are those things that add enrichment, entertainment, and pleasure to our lives. Wants is where your goals really come into play. Your top want, top goal, should be what you really want to obtain, what you are really saving and spending your money for. Not your bills. Not your budget.

A budget is nothing more than a tool, a means of balancing and prioritizing all your needs and wants in such a way so that 1 + 1 really does = 2.

So, where do some of us get into trouble?

Well, one area is separating needs and wants. Example: Housing. A basic need. But do you pay for a luxury condo, or split rent with others in on a 2 or three bedroom apartment, or even (hopefully temporarily) live with parents or relatives. Example2: Transportation. Walking vs. Biking vs. Public Transportation vs. Porsche. I think you get the idea.

Budgets are not easy. They require us to make choices. They require us to look at ourselves, our habits and life styles. They require constant attention and yes, sometimes become quite a balancing act. But they are necessary. It is these reasons that people often view budgets as limiting; and therefore not necessarily a good thing.

But they are good, and in the end, not limiting but rather enabling and liberating!
When making a budget, and sticking to it, adjusting it as needed, it is important to view it as a means to an end. And, just as we are all different, so too are budgets. Budgets should be tailored to what is important to you and what you value and how you live.

So, what is my budget?

Here are the top level categories. I have each with sub categories but here are the top.

Bills & Utilities:
Time Outs:
Misc Taxes:

Unfortunately, that last one has crept back into my budget and the topic of one of my New Years resolutions and future post(s).

Until next time, and with all things…

Be good, do well, have fun.


Gimpdiggity January 11, 2010 at 12:37 AM  

Doug, I have found that there are some tools out there that can really help with a budget that are offered by various entities.

For instance, in the summer here in Michigan our electric bill is through the roof because of running the air conditioning in the 90 degree weather with 97% humidity. In the winter our gas bill is through the roof because of running the furnace all the time while it's 8 degrees outside. In the spring and fall both of these things are really just stable and fairly low.

Well, our electric and gas are both handled by the same company, Consumers Energy. Consumers offers an "equal payment plan." What that does is take the total amount of money you've paid over the last several years and figures out the AVERAGE monthly payment you would make in order to pay everything for the year. At the end of the year if you have underpaid they adjust for the next year, and if you've overpaid they also adjust for the next year.

Well, by signing up for this, instead of having a $300 bill for three months in the summer and a $300 bill for three months in the winter and then six other $70 bills, we now pay a single $180 bill every month.

This type of payment allows us to KNOW how much that bill is going to be every month instead of guessing about how much it will be.

I personally have never been very good with keeping track of my money. I have recently (for about the last 8 months) started using a simple method for keeping better track of WHERE my money goes. Whenever I spend something, I mark it down in a Notepad document that I have saved on my desktop on my computer. When I see that it has cleared the account in my online banking, I put an x by it. It's like a digital checkbook register and I find that I'm MUCH more apt to actually using it when it's like this. Every two weeks when I get paid I wait until everything from the previous two weeks has cleared and then I simply delete that document. It's simple and easy, and I have yet to run into any cash flow issues since I started doing it.

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