Why Is It Hard To Budget?
It’s not actually that difficult to make a reasonable budget. It’s time-consuming, especially if you haven’t done one before. It can be tedious, maybe even a little frustrating at first. But it’s not actually that difficult – especially if you make use of some of the wonderful budget tools which are out there.
On the other hand, it can be a challenge to stick with your budget. Like eating right, exercising regularly, or cutting back how many hours we spend on the couch with a remote in our hand, the doing is far trickier than the knowing what to do. Still, we need some idea of what we should be doing before we can get too worked up about making sure we actually do it. So let’s talk about some budgeting basics before we do anything else.
What’s the Purpose of a Personal or Household Budget?
Some would say it’s to have a good Debt-to-Income Ration (DTI). And that’s fair. Others would say it’s about personal responsibility, “adulting,” as it were. Also reasonable. You may have your own budget goals – plans for the future or better living in the present or any number of other things. That’s totally fine. Your budget goals are certainly just as good as mine, and perhaps better.
I’m going to suggest that having a budget gives you choices. Control. Maybe even a little power.
I don’t want to oversell it. There will be things you still can’t do. Stuff you still can’t afford. But a fairly accurate budget, followed consistently, helps you make better choices about where your money goes. It helps you see more clearly the cost-benefit ration of every choice you make. It will save you money each month – at least a little, maybe a lot.
Debt is a form of bondage. Anything we’re able to do to take control of our own finances, even if shining that light only proves things are pretty messed up, is a step towards freedom. Spider-Man taught us that with great power comes great responsibility; sometimes taking more responsibility leads to more power, at least over our personal lives.
On a less-inspirational note, there are economists concerned about the amount of debt the average American family has been accumulating lately, and what happens to them if the economy dips again, as economies almost always do. Here’s how a recent Forbes article put it:
Working-class families have especially high consumer debt levels. Families in the bottom half of the wealth distribution owed an average inflation-adjusted amount of $33,693 by March 2019, an increase of $6,136 since June 2009, when the Great Recession officially ended.
This debt is also a lot more than families higher in the wealth distribution owed in consumer debt. Particularly, working-class families owed on average $6,114 more than families between the median and the 90th percentile of the wealth distribution and it is $4,244 more than families between the 90th and 99th percentile owed. Working-class families owed much more costly and risky consumer debt than upper middle-class …
Where Do I Start?
The first step of budgeting basics is to gather information. Basically, you need to know your income each month and all of your expenses each month. We can build from there, but to start with, all you need is a simple budget on which to build.
For most of us, income is fairly straightforward. If you work a traditional job, or if you and your partner work multiple jobs, you probably receive paychecks according to a regular schedule. If they’re not the same each pay period, try to determine a reliable average based on the past several months.
Expenses are trickier. If I took the number you came up with for your average monthly income and I asked you to account for where all of it went last month, you might find the task far more challenging than it sounds. Most of us couldn’t do it without going back and looking at our checkbook, credit card statements, or other records.
It’s not important that we memorize our spending every month, but it is important that we have a realistic idea of where our money is going. That’s a huge part of budgeting basics. I’ll never tell you how to spend your own money, but I will push you to make informed decisions about how you spend. Very often, it’s our spontaneous or careless spending that gets us into the most trouble.
Budgeting Basics: The Gathering
For most of us, no matter how thorough we are trying to put together our first monthly budget, we’re going to find almost right away that we’ve left some things out or estimated poorly on some part of our income or our “out-go.” That’s OK. It’s better than OK, because it’s one of the main reasons we’re even making a budget to begin with. We expect there to be a learning curve. If there weren’t, we wouldn’t be working on our budgeting basics; we’d be working on Advanced Budgeting Techniques or some such thing.
To help you get started, though, here are some common expenses to look for:
House Payment / Monthly Rent
Car or Truck Payment(s)
Department Store Cards
Utilities – Electricity, Gas, Water, Trash Pickup, etc.
Cell Phone or Other Phone Bill(s)
Internet Service / Cable TV / Subscription Services (Netflix, Hulu, Amazon Prime, etc.)
Groceries (including Alcohol, Cigarettes, Vaping, etc.)
Clothing / School Supplies / Household Expenses
Pet Supplies / Pet Care
Repairs and Maintenance
Medical / Dental Bills
Online Purchases – Entertainment, Online Shopping, Online Subscriptions
Child Support / Alimony / Allowances
Birthdays / Holidays / Weddings / Gifts
Tithes / Charity
I’m sure there are others. To reiterate – budgeting basics says try to account for everything, regular or sporadic, predictable or periodic. You can adjust as you go, but get as close as you can in order to make the process as useful as possible.
Budget Basics: The Organizing
Now it’s time to organize and prioritize a bit. You can do this using a fairly detailed system like this sample from The Balance, or you can go old school and use an Excel or other sort of basic computerized spreadsheet. For years, I used a legal pad. I had columns like “Non-Negotiables” (rent, car payments), “Important” (groceries, gas, clothing), “Credit Cards & Utilities” (I’ll let you guess what went in that one), “Optional but Nice” (cable, internet, cell phone), and “Fun Stuff” (fun stuff). Sometimes I’d add “Unpredictables” (medical expenses, car repair, etc.)
Of course, it’s the 21st century now and there are more options than ever for helping you keep track of your budget online. You’d be silly not to at least look at a few of them in greater detail. Different things work for different people; make an informed budget choice about what you think might work best for you.
Budgeting Basics: The Prioritizing
This one’s not technically difficult, but it can be emotionally challenging.
Which things on your list so far are non-negotiables? You have to pay them or end up in serious trouble? Your house payment, if you have one, and any car or truck payments. Utilities, usually. Any minimum payments towards credit cards are non-negotiable (you should pay more than the minimum payment, but you must pay at least that much each month.)
Which things are important, but not absolutely essential? This is tricky, especially if you’re working on this with a partner and you don’t always have the same priorities.
Which things could you do with less of, or do without? There must be something. Try to be honest without being calloused towards those around you. We’re still at the theoretical stage at the moment, although tough decisions may be shortly ahead.
Rank the items on your list using a system of your choice – color code them, number them, or start separate columns. You may adjust this as you go forward, but let’s have something as a starting point.
Budgeting Basics: The Comparing
This is the part that can get truly scary. Don’t worry, though – you’ve got momentum on your side at this point. I mean, look at that organized list you’ve created!
Add up your monthly expenses – all of them. Compare them to your monthly income. I know, I know… but it has to be done. Be strong.
If you discover that your monthly income is at least 10% higher than your anticipated expenses…
Congratulations! You win at American finance. May I suggest a few new priorities going forward?
If you’re not regularly putting money in savings, start doing that now. You can afford it at the moment; you never know when you’ll need it.
If you’ve thought from time to time you should be doing more to improve the world around you, consider giving some of that overflow to a reputable charity or religious organization of your choice.
Consider picking your highest-interest credit card and paying extra on it each month until it’s paid off, then move to the next card or other debt. (This is Dave Ramsey’s favorite method.) If you don’t have significant credit card debt, check with your mortgage holder or wherever you send your car payment and find out what you’d need to do to pay extra towards the principal of the loan each month.
Look for waste or unexpected patterns in your spending. I’m glad you’re making enough to get by, but that doesn’t mean you couldn’t have more options and dream a bit bigger without completely depriving yourself.
If you discover that your monthly income is roughly the same as your anticipated expenses…
Congratulations! You are officially living “paycheck to paycheck”! That’s not actually what we want, but it’s so much better than soul-crushing, impossible debt, so we might as well celebrate it.
Not to be all pessimistic, but keep in mind that one unexpected medical bill or car repair can seriously derail you when you have so little to spare each month.
Look for waste or unexpected patterns in your spending. You are no doubt working your booty (or booties) off just to stay afloat, but maybe we can help you get enough of a bump that you’re able to enjoy it from time to time. (I don’t mean vacationing in Dubai right away; more like adding a turnover to your order. But still!)
If you discover that your monthly income is consistently less than your expenses…
Congratulations! You’re the average American! You’re in GREAT company on this one!
OK, that’s not actually good news, but neither is it as uncommon as we might hope. Many, many of us struggle just to break even each month, and if you feel like you’re just sliding further and further behind, well… sometimes that’s because you are.
But listen to me, friend – you can handle this. I don’t know if it can be fixed quickly or easily, but it can sure be made better over time. I wish I could promise you more, but some things take time and a little pain and suffering to get through. Even then, there are no guarantees. But you DO have enormous control over your odds. You DO have the power to make things better or worse based on what you do starting NOW!….
Tough Budgeting Basics: The Choices
If your income doesn’t exceed your “out-go” by at least 10%, you have some choices to make. Rather than try to address every detail applicable to your specific circumstances, I’m going to suggest you do some soul-searching, number-crunching, and grunt-work of your own in each of the following general categories.
Don’t get lazy, and don’t write anything off too quickly. I’m not telling you what to do; I’m suggesting you make informed choices about where to go from here.
Make More Money
I can’t believe we hadn’t thought of that, right?!
This one’s tricky, because while there are all sorts of creative ways to make a little extra money on the side (legally and ethically, I mean), there are also plenty of hustles, scams, and get-rich-quick schemes out there promising far more than they can ever deliver. Generally, as you’ve no doubt heard, if something sounds too good to be true, it probably is.
For me, personally, I follow three basic guidelines when it comes to “extra” gigs or money-making ideas:
If someone wants money up front for a “kit” or whatever, that’s a deal-breaker. If they want my time or skills, I shouldn’t have to pay them for the privilege of providing them.
If I don’t understand what it is or how it works or why anyone would want it, I’m out. That doesn’t mean it’s evil or wrong, but if I lack the background knowledge to fairly judge what I’m getting into, I’ll try something else instead.
If it’s taking time away from other priorities or obligations with limited payoff, I’m out. I’m willing to invest time and passion into writing history resources, for example, knowing it may never turn a profit, because I care about it. I want to do it. But if I can’t document a few bucks an hour after investing time and energy into something I’m doing specifically for extra money, it’s probably time to move on.
I taught with a guy for years who made more mowing lawns and doing minor landscaping for the ten weeks of the summer he was off than he did the rest of the year teaching. I have friends who drive part-time for Uber or Lyft or whatever; they’re not living off of it, but it’s extra money on their schedule. I used to pay a neighbor to keep my daughter (who was besties with her daughter) before and after school because my wife and I both worked; she didn’t get rich off us, but it probably helped with a utility bill or two and saved me a fortune over traditional child care.
Clean out your closets and see if anything’s worth selling. Offer to tutor local kids (or adults) in whatever you’re good at or have a degree in. Look into freelance writing, graphic design, or other growing elements of the “gig economy.” Not everything will pay off, but some of it will. Take some risks, but listen to your gut while you do. And keep in mind that you’re not trying to take over the world here, just pull in enough to enjoy your life a bit more fully. Well, that and prevent soul-crushing debt from taking over.
There are also so many awesome apps out there to help you with your money, savings and budget. This top personal finance apps video gives a great overview of the technology to help you along.
Cutting Non-Essentials (the Careless Stuff)
There are numerous good articles and lists online for simple things you can do to help you with budget basics by shaving a few dollars here and a few there. You remember the old Ben Franklin standard about a penny saved being a penny earned, don’t you? Dollars are the same way. And they add up. Quickly.
I think of this category as being stuff entirely or mostly in your control. Eating out. Paying ATM fees. Impulse buying. That sort of thing. Many of these are self-control related; others are just a matter of whether you’ve ever thought about them or not.
I’ll start you with a few of my favorites and you can go from there. Try searching for “budgeting tips” or “easy ways to save money,” that sort of thing. Besides, you know what another term is for staying in a few evenings and looking up money-saving tips, alone or with a partner? “Cheap entertainment.”
Budgeting Basics: If You’re Going to Keep It, Shave It
Some things we decide we can’t live without, like our cell phones. Other stuff is technically not essential, but provides services or entertainment we’d severely miss, and which would cost us more to access some other way, like our home internet service or cable TV. Maybe you decide to keep some or all of these things, but do you need every feature you originally signed up for? How much data do you actually use each month on that phone plan? How often do you watch the channels in that extra sports package?
This part is more time-consuming than deciding to take your lunch to work or buy store-brand peanut butter. It starts by looking over your cable bill, your phone bill, your various subscriptions and such. Sometimes it takes some doing even to pull these up – passwords you haven’t used in months, or digging through old emails to even figure out when you signed up and how many months are left on whatever you committed to back in the day.
It also means calling places you don’t like to call. It’s as ironic as it is painful, but communications companies can be the worst when you’re trying to get real live human customer service. One suspects that’s by design, but I wouldn’t swear to it. Take a deep breath and have your favorite beverage nearby, though, and make that call. Be ready to enter numbers with buttons, to tell machines what you need, or to try pressing ‘0’ even what that’s not an option. Above all, don’t get frustrated and hang up – it all starts over when you do that.
What are you going to say? You’re going to tell them you’d like to cut back on your features. Don’t lie, but if you’re willing to consider cancelling altogether, it’s amazing how cooperative the person at the other end suddenly gets and how quickly they have all sorts of special offers to keep you by giving you more for less money. It’s not worth being deceptive or manipulative – that’s just wrong – but if you’re willing to walk, don’t be afraid to use that. Many companies have entire “Customer Retention” departments for this sort of thing.
Oh, and make sure you don’t end up paying more by the time you’re through, or committing to two more years of something you can barely afford anyway. The goal is to cut expenses, not increase gigabytes or access to new release movies or whatever.
These calls will often require endless patience and polite firmness on your part, but what would saving $20 a month be worth to you? What about $40 or $50 if you go down the list, calling one place a day and standing firm?
Budgeting Basics: Can We Live Without It?
Depending on how big a difference there is between your income and your expenses, you might need to cut some things you don’t want to cut. If the library is in walking distance, maybe internet isn’t absolutely essential right now. I know your kids all want their own phones, but is that worth whatever you’re paying monthly for them?
I don’t want you to be miserable. In fact, that’s what we’re trying to avoid. But consider cutting things you’d not normally consider, as long as they don’t impact you or your loved ones’ health or their opportunities to move forward.
Is Bill Consolidation the Answer?
It can be. It’s not always. Trying to take out one big loan to pay off your existing debts might provide several advantages:
If your debt consolidation loan has a lower interest rate than most or all of the things you’re paying off, it will save you money on interest alone.
A debt consolidation loan can mean fewer payments to keep track of each month, reducing the chance you’ll be late on one or more obligations.
The payment due each month for one debt consolidation loan will probably be lower than the combined minimum payments of the things you used it to pay off.
A debt consolidation loan gives you an opportunity to begin rebuilding poor credit by paying off bad debt and establishing a solid track record paying on the consolidation loan.
Let’s not ignore the potential downsides to a debt consolidation loan, however:
If much of you monthly debt is ongoing – utilities, phones, internet, subscriptions, etc. – a debt consolidation loan won’t impact those things because they can’t be “paid off.”
Pay careful attention to interest rates, late fees, or any other factors which might make your consolidation loan less of an advantage than it at first seems.
Once you’ve paid off bad debt and reduced your monthly obligation, all those places you paid off are going to want you to start spending again. What’s worse, we are sometimes tempted to go into more debt now that it feels like the pressure is off, telling ourselves we can handle it this time!
The Ongoing Reality of Budgeting Basics
Truly getting control of your household budget is not just a one-day or even a one-month process. It means getting used to keeping your checkbook current. It means paying attention to whatever sort of spreadsheet or list you’ve created and adjusting it as reality demands. It means making tough choices even when you’re not sure they’re the right ones, sometimes saying “no” to things you’d like to have or do, and sometimes saying “yes” even though you’d rather save a few bucks because some things are more important.
For about a year, I had my phone alarm set to go off at 4:00 pm and 8:00 pm every day. When it did, no matter what I was doing, I forced myself to stop and look at my planner. (I kept an old-school paper planner, a small spiral from Wal-Mart or Target or something.) Even if I didn’t stop and do everything in that planner right then, I was constantly aware of what needed doing because I looked at it at least twice a day. Anything important went in the planner, as did a number of less-important things. Anything that didn’t get done was rolled over to be seen again at 4:00 and 8:00 the next day.
Eventually, constant reference to my planner became second-nature. It still is. It’s the only way I function at all, not because I’m so important or so busy but because I’m so easily distracted and sometimes completely confused.
Changing money habits is the same way. Whatever we have to do to organize or trick ourselves – notes to ourselves on the bathroom mirror, phone alarms, computer notifications, or even teaming with a friend to hold mutual accountability sessions at least once a week.
It can be emotional. It can feel personal. Money stuff stirs up all sorts of feelings about our self-worth and our values and our wants and our needs and things we’re not even always aware of until they’re good’n’stirred. There’s a reason money troubles rank so high on factors leading to relationship troubles.
Don’t Be Afraid To Ask For Help
If you’re in really deep, check into legit credit counselors in your area. If it’s weighing on you emotionally as much as financially, take advantage of whatever counseling programs your work covers, or talk to your pastor.
If mostly you just need some ideas and options, let us know. We’d love to help connect you with financial professionals who have plenty of both. Then you decide what to do. Now it’s an informed decision.