I want to talk to you about budgeting. I am actually going to give you a story about budgeting mistakes. By this time I feel that you should know how to budget. But, if not, I will create another video. If you need tips on budgeting, send me an email at firstname.lastname@example.org.
It’s a spending plan! Not a budget
I believe in spending plan! Now a spending plan and a budget is the same thing, call it what you want. I just call it spending plan because there was a time where the word budget just seems so restraining.
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You know when you hear the word budget, or when you hear your friends talking about budgeting. The first thing you hear is something negative. So, I changed the word to spending plan. Because, it’s like I am telling my money to do. this spending plan. A, it’s not a budget because I am spending according to my plan
What is a zero sum budget?
Let’s talk about my mistake that I want you to avoid, please, please, please, please, avoid this. The first thing you need to do is, creating zero sum budget. Now, some of you do not know what that is?
A zero sum budget is where you start with your net income at the top. And at the end of that budget, you go through your “must haves”, you go through your “savings”, you go through your “wants” and, you end with a zero.
So, at the beginning of the month, if you get paid bi-weekly, you get paid semi-monthly, you get paid monthly; you should know what your income is going to be even if you get paid hourly. Take the last three months and put in average for your budget, the most import thing is ending with zero!
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The reason why you want to do this is because you need to tell your money what to do from the beginning of the month. Before you get it, you tell your money what to do. So, you allocate how much money is going to the things you have to pay which I call “must haves”. You allocate it to how much you are going to save. You allocate it to your needs and those wants, which is the area where you most likely can, you know,CUT , if you need to address more savings or “must haves”.
Anyways, on to my mistake. So, now that you have your zero sum budget, you must allocate your categories properly, I cannot preach this enough. Your “must haves” have to be with your “must haves”. Your things you are saving for, must have been in your savings column. And your wants have to be with the wants.
My mistake was this, in our budget in the “must have” section, I included our dating fund along with fund for food / house budget. This created an issue where we had just too much money allocated to the food, house and dating fund.
So, every month for about six months, we went over food, house and dating fund but instead of analyzing the last six months and figuring out where the spending was going, I blindly, made adjustments and I blindly assumed that we were just eating out too much.
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Now the analogy that I would like to give here is, you know those little car sensors you have in your car that let you know that, hey, your tire pressure is low. It doesn’t tell you what tire was low on pressure. It just tells you, hey, one of your tires has low pressure and you need to do something about that.
Since the sensor doesn’t tell you which tire has low pressure, you shouldn’t just pick a tire and change it. You should go to each tire to figure out which one has low air pressure, instead of going to the mechanic and saying, hey, change my right front tire or my right passenger side tire. If you do that you are going to come from the mechanic and realize that it was the left driver side tire and you would be pretty pissed off.
So what I did was, I said, wow, we are eating out too much. Let’s stop eating out so much. And then the next month we were still still over budget.
Analyzing the problem and properly categorize things
I eventually figured it out and proposed, in our monthly budgeting meeting, that we need to separate the dating from the food/ house fund. We did that and first thing I noticed was, hmmm it’s still running a little high. What’s the problem now?
The problem now was this guy (me), this guy right here (me again) was going to the damn grocery store every day, may be once a day. Sometimes four times a week! We all know what happens to you when you go to the grocery store four times a week. Those little flaming hot Cheetos, those Twinkies, that soda, all that stuff. It finds its way in your cart.
You can find yourself going over budget by not properly categorizing things.
So, the first thing we do, was remove the dating from the “must haves” and put it in its proper category which was a want. Then we, I mean I, limited the amount of time I went to the grocery store.
These two changes saved us one thousand dollars.
One thousand dollars! Now, you might be saying what the hell you were buying from the grocery store that you could find one thousand dollars in your budget. I mean it’s the food and house fund people. One month I bought a vacuum cleaner, because I thought we needed a vacuum cleaner. I bought supplies and household items in bulk. I would buy electronics from Amazon, I would buy stuff from buydig.com
So, it wasn’t just a food fund, it was all types of things, since I saw a large number, I thought basically anything I purchased would keep us under budget.
Thankfully… it doesn’t happen any more.
My tip to you…
1. Create a zero sum budget. This means your monthly budget ends in zero.
2. You have to properly categorize your must haves, savings and wants.
So, if there is an issue, you can properly analyze the issue without taking too long.
Readers, what is your budgeting tip? Leave a comment below specifying the tips/tricks you use to prevent you from going over budget.