A few years back a friend of mine accidentally saw one of my paychecks, he was shocked to see that he was earning more than me. He also noted the fact that his wife worked and mine did not. This particular friend had approach me a couple of times in need of a loan to get him through until his payday. Because I had been able to help him he had always assumed that I made more than he made. Once he realized that the situation was reversed he asked me how could we possibly being doing as well as we were. I then asked him what type of budget he and his wife use for their household finances. He replied that they did not have a planned budget for the household bills. Well, I was surprised because this friend always seem to be very organized. I asked him how he thought he could manage his money without a budget. I explained that a budget is the cornerstone of knowing where you stand financially. I mentioned a phrase that I heard from my Dad years earlier...If you fail to plan, then you should plan to fail. I think he was a little offended and a little embarrassed, but he did see my point. I told that for many years my household had operated on a budget and yes at first it was not easy. Starting a budget is the hardest part, the adjustment to being responsible to show where each dollar goes is not pleasant for most people. The longer you do it the easier it becomes because you start to take pride in sticking to your budget and you begin to see the fruits of your labor. I asked him to try by starting on the following plan, which is the same one I used when I started out. I told him to use it for 6 months and then we would see if it worked. The plan is simple: Your money needs to be divided by percentage for uses. 33% for housing, 17% for transportation, 25% for monthly bills, 10% for donations, and 15% for savings and investing. I asked him to list all of their misc. spending and notice if any money was being wasted. The savings account is also utilized for emergency needs such as home or car repairs. Right from the start my friend said that 25% would not cover his monthly bills. I told him that he would need to use the portion designated for savings and pay off the credit cards. It turned out that they were maxed out on several cards and that was the main drawdown on their income. At the end of 6 months I met with him and he said they had paid off three of the cards and had listed their monthly misc. expenses. With that list they had realized that they were spending about $250.00 per month on things that were not neccessary. That combined with the savings on credit card payments had allowed them to put $1,000.00 in savings. They will soon have all their credit cards paid off and will be able to place more money in the savings column. This budget is a very simple example, the actual budget for each family requires a little fine tuning to match the current situation of each household. More advanced examples will be soon posted at Wongaa.com. |
