Are you ready to give up stress and worry and gain peace of mind? Here’s a whole new way to look at budgets!
Does this sound familiar?
· I don’t want to give anything up!
· I don’t need a budget. I write the checks and I know what’s going out!
· I don’t have a head for numbers, but I know we can’t cut back any further!
· I don’t have time to keep track of all that!
· My accountant watches all these things!
Here’s a very simple approach to setting up a budget. It doesn’t matter whether you have a lot or a little to spend. This approach will work for your business and for running your household.
Step 1 Go through your checkbook for the last year and list all the expenses that are part of a commitment or contract. These expenses can be part of a written legal contract or verbal commitments. Go through all your credit cards and if you are not paying off what was purchased each month – limit using them as much as possible and set up a payment plan. Ideally, plan to pay off your credit cards within a year. If you have several cards – start paying off the card with the lowest balance first. Paying each card off will motivate you to continue the process. Commit to paying more than the minimum each month.
Step 2 List all the expenses needed to run the household or keep your business operating. These are basic expenses and must be paid each month or regularly. Include everything that the household or business needs to function.
Step 3 Here’s a way to reduce your credit card use and avoid costly finance charges. Flip through the checkbook for the whole year and list any “big ticket” items that occur only once or twice a year. Examples of such items are vacations, membership dues, and repairs. Let’s say your annual professional membership dues are $360. You will set aside $30 per month. You’ll have the money to pay for your dues next year and you won’t be forced to use your credit cards. Large well run corporations use the same approach when facing the maturing of corporate bonds. They set up a bond sinking fund so they have the funds to pay off the bondholders.
Step 4 Add up all your committed expenses and subtract this amount from your income. What’s left is your discretionary money. Now you are ready to quickly gain control of your spending and create new habits to help you reach your personal or business goals. Here’ how!
Review each check you have written for the past year and ask these questions:
· Did I really need this?
· Did this purchase help me reach my personal or business goals?
· What was the long-term benefit from this expenditure?
· Did this money go to someone who needed your help?
Before you write the next check or use your checking account debit card, stop and ask these questions? You are now making conscious choices on how you wish to spend your money – you are now in control!
This approach may not be an accountant’s dream for preparing a budget, but it is a simple method to organize your finances and begin to achieve your goals.