I’m a bit of a nerd, I love creating Excel spreadsheets and organizing my finances with Quicken. You might even go so far as to say I’m a bit obsessed with managing my personal finances.
I even go so far as to live by a budget. Yes, the dreaded “B” word.
Budgeting allows me to tell my money where to go rather then letting my spending control me.
I have such a hard time understanding why so many people cringe when they hear the word budget. For me living with a budget is very freeing.
Ultimately a budget isn’t supposed to be about limitations, it is about learning to control your spending based on your actual income.
Our society is just a little bit spend happy. We have taken consumerism to a whole new level and people are focused on spending to achieve happiness. Everything is focused around instant gratification.
Living within a budget negates the spend mentality and requires foresight and planning. No more instant gratification.
How I learned to budget
I learned budgeting from my parents. Not so much by what they said, but by their example.
My parents are cattle ranchers. Only a few of you will understand why this is so applicable to budgeting.
A ranchers goal is to sell his cattle in the fall when they have had enough time to bulk up from the summer. The more an animal weights, the more it is worth. If you sell an animal during the winter it is naturally more lean and worth less.
Ideally this means a rancher will sell his cattle once a year . . . . which means he gets paid once a year. Crazy huh, yes they would occasionally sell some cattle in the spring, but even then that means semi-annual income.
When your main source of income comes in once or twice a year, budgeting isn’t an option, it is a way of life.
My parents are the ultimate budgeters. They are very meticulous about their spending and watch every single penny. They know exactly how much money they have to spend each month and they stick to their budget.
My budgeting skills aren’t even close to my parents. I incorporate a lot of wiggle room into my budgets and may occasionally fudge in one direction or another.
However, my budgeting has two simple, unbreakable rules.
1. Pay yourself first.
I’m Mormon, so for me this is done in two ways. I always pay 10% tithing to my church. For me paying the Lord is the same as paying myself.
My second step is to put a set percentage of my income towards my three forms of savings.
- Retirement – see my article on 401K/IRA’s
- Emergency Fund – 3-6 months of expenses in a separate savings account
- Personal Financial Goals – For me this currently includes saving for our next major vacation (Ireland when my nephew finishes his mission) and a new vehicle.
This percentage changes based on current events in my life, but is typically 15-20%.
Our emergency fund is currently at 6 months, but until we hit that point I threw every extra dollar towards that goal. I always contribute at least 10% to retirement and usually do $500-1,000 towards the personal financial goals.
Even as a teenager I always planned out my spending. I hated the feeling of not having money and have never been able to live paycheck to paycheck. The thought of not having a reserve freaks me out.
2. Never Spend More Then You Make
In my first marriage my husband and I had slightly different views on spending. He just had more expensive tastes then I did and I didn’t know how to say no. More then anything we were just young and dumb. Our spending was never exorbitant, but as college students living off student loans it wasn’t sustainable.
After our divorce we split the $858 in credit card debit we had accumulated. I know, $858 is virtually nothing when it comes to credit cards, but for me it felt like the end of the world.
I made a commitment to myself that I would never carry a credit card balance or live outside my means again.
Beyond some work reimbursements where they covered the interest, I’ve held to this commitment.
Keeping spending within reasonable levels is where the budget comes in. Without a plan you will over spend. Without a plan you will waste money. Without a plan you are directionless.
Over the next couple of weeks my future blog posts will go into more depth on budgeting and personal finance. This is a subject that I’ve spent a lot of time researching and am exciting to share my personal experience. Let me know if you would like me to cover a particular subject.
***Shortly after I wrote this post my husband’s company went out of business. Fortunately we had just completed our 6 month emergency fund and had paid off $293,000 in debt. I wrote a post How We Paid Off $293,000 in Debt in Five Years that talks about our experience. We couldn’t have accomplished this without making and sticking to our budget.
Photo Credit: Old Fashion Cash Register – Jessica Rabitt