This is the first of a two-part series on the role of personal budgets to help you live within your means, attain your goals, and manage your debt.
I’ve never quite understood the vast majority of the public’s aversion to the word “budget.” If you are one of the millions of “budget-phobes” who equate the word with such unappealing terms as “restrictive,” “limiting,” and even “scary,” let me share with you some of the terms I associate with the word: “freedom,” “dreams,” and “control.”
Why the drastic difference in perception? I believe the answer lies in many individuals’ lack of awareness of the budget’s potential to help them achieve their goals. Some of the soundest advice I give my clients is to examine their lives and then ask themselves if they like what they see.
Your budget should reflect the life you want to live - now and in the future. Reason being, your budget gives you better control of your destiny. At the same time, it can help you manage your debt - and better yet, help you make sure the amount of debt you assume is within a “healthy” range. Brilliant!
Hopefully I’ve softened you to the idea of creating a budget for you and your family. If so, and you don’t know where to start, here are a few pointers. First, determine your total annual household income. Next, figure out your expenses. You don’t need any complicated computer software; a simple budget worksheet, which you can download from any number of sites on the Internet, will more than suffice. Hopefully, once you subtract your spending from your income, you’ll have a positive figure. If not, you will definitely need to cut somewhere. (Before you start thinking budget = scary again, think how much scarier and stressful it is to be hounded by creditors!)
Now that you have everything down in black and white, ask yourself what I mentioned earlier: “Do I like what I see?” If what you see and feel is a throbbing reminder of how poorly you’ve managed your debt, resolve to get a better handle on your spending. Make the necessary changes to reflect the life you want to be leading. If you decide you want to take an extended vacation this year to spend some extra quality time with your family, write it into your budget. Just remember that monies spent on the vacation will need to be saved elsewhere.
Many people do not realize how much they spend on pricey coffees, biscotti and other snacks, and insignificant purchases that are forgotten within days. Such purchases can literally amount to thousands of dollars each year. For a real wake-up call, keep dibs on all expenses for two weeks.
Then ask yourself, is it worth it? Is there anything else I would rather be doing with this money that better reflects my values, dreams and goals?
Hopefully I’ve helped convince you that budgets aren’t restrictive, limiting, or scary in the least. On the contrary, they are simple tools that give you the freedom to live the life you want, placing you more firmly in control of your destiny.
Kathy B. Paal, MBA, CFP, RFC, CTFA
Ms. Paal is a certified financial planner at Heritage Financial Consultants in Lutherville, Md., and is an investment advisor representative, registered representative, and licensed insurance broker with Lincoln Financial Advisors Corporation, a registered investment advisor and broker-dealer (1300 York Road, Lutherville, MD, 410-339-6675). You may email Kathy at [email protected].