Bountiful Boundaries (How to Start and Love a Budget)

I’ve always heard that boundaries are good for children, and so we have many such boundaries instituted in our home.  Our children are not allowed to use the Instapot, even with adult supervision.  They are not allowed to lie.  They are not permitted to disrespect their parents.  They must brush their teeth (we tell them they will never get married if they skip this one, that seems to work pretty well on four girls:), they have to daily make their beds, put away their clothes.  This does not make them miserable creatures, it helps them feel more secure and creates more personal and household peace.   This is going somewhere, I promise.  If boundaries work well for children and establish greater peace and security, entertain the possibility a budget will do the same for you financially – more peace, more security.  It’s not a tightening, constraining feeling at all, but more like a thick-knotted safety net as you walk the tightrope of life.  Any number of things can knock you off balance: sickness, loss of a job, declining sales if you own a business, natural catastrophes, accidents, or (fill in the blank, possibilities are nearly endless).  So do yourself a big favor and start working on your budget. Envision the heavy duty rope, securely knotted into a tight netting that will work hard to catch you if you fall (or get pushed off) the rope.  I submit there are three reasons people don’t have a budget and they are as follows:

1. They don’t understand the value of a budget. 

2.  They don’t know how to implement a budget. 

3.  Deep down, they fear it will constrain their spending and therefore, their happiness.  

Let’s assess each of these and see what we find.  We’ll start with the question, “What is the value of a budget?”  If you don’t grasp this, you will probably never create and stick to a budget.  The SUPREME value of a budget is in seeing how all the financial puzzle pieces in your life do or don’t work together.  If you stack up all your spending categorically and it exceeds your income, you have a problem, but knowing you have a problem is better than burying your head in oblivion.  In my own experience, without a budget, we made most decisions based on the current check book balance, or our conversation went like this, “We make “X” amount of money, so we can afford eating out 2-3 times a week, we can afford this bloated cell phone bill, we can afford to get whatever we need/want at the grocery store.”  It went on and on like that, and we never stopped to see how all those things added up – all we could see was that somehow, even with good income, we never had anything left.  Honestly, I can’t tell you how many times we scratched our heads in bewilderment, because there were no large purchases being made that would have made the problem obvious to us, it really didn’t make sense.  So, under the old “spend because you’re making good money” plan, we never really knew if it was a bad financial move until it was too late, and we were scrambling to cover some unexpected expense.  These unexpected things came up fairly regularly, no idea why we still tried to play the surprised card. Here are some examples:

– Doctor/dentist bills

– Car repairs

– Home repairs

– Tax bills, just to name a few

If I had to pinpoint the problem, it’s that we didn’t like spending money on anything that wasn’t a fixed expense or a fun expense.  Water bill: fixed expense, mortgage: fixed expense, dinner out: fun expense, fancy hair cut: fun expense, burst water pipe in kitchen (yes, this happened to us): not a fixed expense, not a fun expense.  And so, quite often, we pretended those things didn’t and never would exist so we didn’t have to earmark our fun money for them.  The downside of that was it led to stress when the expense came up, anger, discouragement, a whole host of avoidable negative feelings.  It would negate a whole slew of overtime my husband worked, or my really stellar sales week and leave us feeling like this, “What is the point of evening trying?  Something always comes up and snatches my hard work away, humph.”   Are you starting to see the necessity and beauty of a thorough budget?  Create a fund for home repairs and set aside a dollar amount each month, do the same for car repairs, etc. and when the alternator goes in your van (yes, that happened to us) it really isn’t a meltdown moment any more.  The money is already there, and it wasn’t ever going to be approved for anything else, so you swipe the credit card (to get the reward points, naturally.  You are wise enough that you will always, ALWAYS pay it in full or you will not use a credit card, and pay it off right away).  Here’s the thing, with a budget that you actually use, you won’t “accidentally” spend the grocery money eating out too many times.  You won’t carelessly spend too much on clothing and stress about the car insurance you forgot you hadn’t paid yet.  You are now FREE to spend within your budget boundaries.  You are not constrained, you are free, and it feels good, believe me.  

Well that was way too long-winded for point one, the value of a budget, but I hope it was persuasive and now you want to know how to overcome the second obstacle, how to create a budget.  Let’s go step by step.

Step 1: Determine whether you have variable or fixed income, or some of both.

If you are an online seller for instance, you likely have super variable income.  Holiday seasons can bring large cash swings your way, and slumps are bound to follow at some point.  The uncertainty can become draining, so how can you even out these expected inconsistencies?  By looking at a larger set of data and finding your averages.  If you could go back and look at net income over several years (given there haven’t been any drastic changes in your business model or income), try adding up several years and divide by total number of years being looked at to get an average yearly income, if you find there has been a degree of variability from year to year.  Now divide that yearly average by 12 months to get your average monthly income.  This is easy if you have a 9-5 salaried job but not so easy if your sales are your only source of income.  If you have some of both fixed and variable income, add the fixed monthly income to the average variable income.  Always aim to be conservative as you set up your budget, and by all means, aim to spend far less than you earn and put any extra money towards your saving and investment goals.

Now that you have your monthly target amount, it’s time to put those dollars, or little green men as I like to think of them, into their proper abodes .

Step 2: Assign all monies to a category. 

Here are some things to include in your budget, and this is not exhaustive, but a starting place.  We use Dave Ramsey’s free Every Dollar app which updates real time and keeps my husband and I in sync with spending, but there are plenty of other free options that would work just as well, or you can old-fashion it and use paper (it’s a flat, usually white substance, sometimes has faint blue horizontal lines on it).  

 Let’s start with a simple bullet list – here are things that are helpful to include (again, not exhaustive, though I’m exhausted from trying to make it exhaustive!):

  • Mortgage/rent
  • Home maintenance
  • HOA dues
  • Utilities like water/electric/gas service/trash removal
  • Phone/cell phone service
  • Internet
  • Any monthly subscriptions 
  • Food, I suggest having one line for groceries and one for eating out
  • Car loans
  • Car repairs
  • Car gasoline
  • Car insurance
  • Car tax, registration fees
  • Car replacement fund
  • Emergency/savings fund
  • Entertainment/travel
  • Medical/dental/eye care
  • Household supplies
  • Tuition/repayments
  • Professional licenses that require renewal
  • Tax preparation fees if you don’t do your own taxes
  • Clothing
  • Gifts
  • Hobbies

So clearly this part does not happen by osmosis, just pressing your clammy forehead against the computer screen of your bank drafts will not birth a dreamy budget.  So yes, you have to do actual work at this point.  You have to look at your credit and debit card statements.  I found a few months was plenty to get the idea of what we were spending/overspending on (do not guesstimate, you will under-guesstimate) .  Don’t be afraid to do an internet search of “what not to forget in a budget” – there are plenty of helpful lists out there, aggregate the categories you need and be realistic.  Just because you don’t want to save every month for the car tax doesn’t mean you should ignore it.  Make real expected expenses fit in your budget and you’ll be glad you did.  The more items you budget for properly the more peace you will realize.   If you do forget something, it’s fine to add it in on the fly, make the appropriate changes – maybe you have to decrease a discretionary category to fit in a man-I-wish-I-could-spend-this-money-on-something-else item, but do the hard work up front so life is easier down the road.   Similarly, you can also look up “what does the average family of “x” number of people spend on groceries, if you aren’t sure what you are budgeting is realistic. 

Step 3: You must use the budget. 

What a strange idea, to make something and then use it.  Your darling budget cannot sit idle on the sidelines, it must be an active part of your life.  I find that a free phone app is perfect for my family, we update every day, multiple times a day as needed.  We always know what is left in food, gas, and every other category.  We also always know at the end of the month what was unspent and can be saved to propel us closer to our goals.  Totally worth the effort dearest reader.  

So we all agree by now (please say I have convinced you) that a budget is a stellar choice for every person with a pulse.  It does take some work to set up, but once you hit the highlights and do a little fine tuning you can cruise.  So onto the final thought, why was there a deep-seated fear of being on a budget?  Where did that come from? 

Possibly a lack of instruction.  But I can’t help thinking the heart of the matter was somehow budgeting had become synonymous with agreeing to do without – for every want there would be a budget to block my ability to satisfy those wants (and gasp, maybe even my needs).  Yup, that feels like I nailed it. I feared the budget would force me into making a constant distinction between needs and wants and I’d only ever be able to spend money on boring bills and toilet paper, all the fun spending would vanish. Now let me provide the glorious news that I was wrong.  Completely and entirely wrong.  The budget hasn’t blocked anything – instead it has paved the way like I never thought possible.  We have budgeted well and we have money for all of our needs.

No one is losing weight due to lack of nutrition, no one is hangry around here, unless they are too busy or lazy (ahem, all household fingers pointing to Mom) to avail themselves of the plentiful food. We have money for house and car repairs, even a healthy vacation fund.  Recently the battery died in our van in the midst of a store parking lot (providentially in walking distance to an auto store).  My girls anxiously asked how much it would cost and would we be able to afford a new battery.  You cannot put a value on the joyful relief they felt when they heard their parents calmly answer we had plenty of money in the car repair fund.  Crisis averted with zero meltdowns.  We have been budgeting for almost three years and I truthfully cannot think of one thing I really wanted that I “couldn’t” get because of the budget.  True, I have goals that are prodding me to want less and less every day, and it unmistakably helps to be content with less, but the real beauty and benefit of the budget is you are free to spend within each determined category’s limits with no fear of self-sabotage.   We are often our own worst enemy with money and we need a best-budget friend to intervene.

Note: I am not a financial planner, CPA, or any other type of financial expert or professional. Her Merchant Ship is for informational/entertainment purposes only. Seek a professional for financial advice.

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