Whenever I talk to people about budgeting, there are a few common things that come up. There are those that tell me that they have tried budgeting, but they haven’t been able to find a budget that works. There are others that tell me it is impossible to plan for every expense that they might run into. Finally, there are some that have broad categories in their budget to try and encompass all the different expenses and inevitably are having to constantly readjust their budget throughout the month because things do change.
Every month is different
No two months are the same, every month is different. Some months the differences may be more subtle, while other months the difference could be drastic. There are some constant expenses like the house payment, a car or student loan payment or your cell phone bill, but there are several other categories that change. These include eating out, vehicle gas, gifts and celebrations, vacation, car repairs, and the list could go one. Taking a moment before each month begins and creating a budget for this next month is key to having success with your finances.
Proactive versus Reactive
Creating a new budget every month is a way to take control of the finances. It is having a detailed financial plan for the next 30 days. If we don’t, and we just pull out the old standard monthly budget that we are “trying to stick to”, as soon as we go off-budget we feel like we have failed. We feel like a victim, and the chance of more “failures” that month increase because we waive the white flag and give up. Many times these items that derail us could have been properly planned for if we had taken the time to intentionally think about the upcoming month and plan accordingly.
Review the calendar
Whenever I am working with someone on creating a new budget for the next month, or even my own, I have them look at the calendar. There could be several things that are coming up that are particular to that month. For me, this past month, my wife and I had our anniversary, as a family, we took two different long weekends to get away and visit with friends. We had back to school shopping lists along with some uniform purchases. Those were several items that were not present in the previous month’s budget, nor will they be present in next month’s budget. If I didn’t properly plan and allocate funds to cover those items, the month would have been a disaster.
Plan for larger expenses and big events
Christmas gifts and a friend’s wedding should not be surprises into the month’s budget. Christmas gifts we can see from 12 months away. Most weddings we should have at least a 30 or 60-day heads up that it is coming. Probably more if you are in the wedding. When we do have larger budget items like this, it is important to determine if we will be able to absorb them into the month they will occur, or do we need to start budgeting for them months in advance. For instance, if we plan to spend $500 on Christmas gift this year and we don’t think we will be able to allocate $500 of December’s budget towards that, we need to start saving $100 a month starting in July, to have the $500 for gifts in December.
This is just an example, if you are like my wife, she is asking for Christmas gifts to be in the budget year-round so that she can start making purchases when she sees an item go on sale. Setting money aside every month for larger purchases is known as sinking funds. Please see my article on sinking funds for more information and details on how to establish them.
Budgeting gets easier
As you start to implement a new budget every month, you will be developing your budgeting muscle. In preparing your budget every month, you will be able to copy over several of the more constant expenses(rent, mortgage, subscriptions, loan payments) and then look at the variable and discretionary ones to determine how to allocate the remaining money. I also find it helpful to sometimes look back at last year’s budget for that month, in case there are items there that will help me plan as I am creating the new month’s budget.
If you are unsure of how to get started with your budget, please check out my Five tips for beginning to budget. As always, I am available for one on one coaching to help you create a successful budget process and work towards your financial goals.