Without a budget, financial disaster beckons
Budgeting is important for the individual living alone or for a household. Many have forgotten what it is to live within their means, but the last great recession left many families with crippling, but avoidable financial crises that could have been avoided if individuals had working budgets.
The issue facing many families and individuals is learning to budget, save, and live within their means.
You can budget manually, just by writing things down or you can use a computer. Of course, using a computer is much more efficient.
If you use the manual method, you simply write down what you make and spend each month.
With the computer-based approach, you can use a specialized program like Quicken or an Excel spreadsheet. With each approach, you:
- Enter every expense
- Enter all income
- Project out 4-5 months
- Monitor it, modify it as you go
Classify your expenses as:
- Necessary
- Important
- Could-do-without
- ‘Why did I buy that again?’
We suggest you eliminate the last category and eliminate as many of the ‘could-do-withouts’ as possible. This is of course, is where honesty comes in.
Some useful strategies:
- A great goal is saving 10% of your salary. You should do this automatically, with the money going directly into a second account that is rarely accessed or into an Investment Retirement Account (IRA).
- Plan your giving and be consistent if you give to charities. Charities prefer consistency in giving above all else so they too can budget.
- Aim to save 3-6 months of salary as an emergency fund.
- Both spouses should be involved in major decisions.
- Both spouses should know where records are: e.g., Bank accounts, property titles, wills, insurance policies, bonds. Too many spouses die and go to their graves with the knowledge of where valuable family assets are.
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