With the New Year upon us, many have made a resolution to do better with their finances. In a few short weeks, many of us in the States will be receiving our W2 forms from our employers. It can be extremely frustrating to see exactly how much money we earned over the course of the year when we compare that number to the balance of our checking and savings accounts. As financial expert Dave Ramsey often says "if you don't tell your money where to go, you'll wonder where it went." For far too long I was in the camp of wondering where it all went. It goes without saying the one of the cornerstones of financial independence is spending less than you make. We all know this, but many of us struggle to except it. The key to keeping your spending in check is having a written budget. That is the hard part.
The first month (or months) you keep a written budget can be very tough. Just like diet and exercise, many of us jump in with both feet and go strong for a few weeks with a budget, then go back to our old poor habits. I believe the main reason keeping a written budget is so hard, is that it makes us see, on paper in black and white our poor habits and that generally we are not as well off as we act. Actual numbers written down on paper or a spreadsheet on your computer force people to face another one of Dave Ramsey's favorite sayings head on "we spend money we don't have to buy things we don't need to impress people we don't like." And that's a reality that is hard to face. At least it was for me. But if we stick to our goals through the pains of the beginning, we are rewarded with life improving habits. Also like diet and exercise, we can get into the budget habit easier if we start off slow and easy.
I failed more than once by starting off writing a budget that was not realist to my spending habits and needs. I just broke out what I thought I'd spend my money on into categories and jotted down a dollar amount that was basically off the top of my head. When within a week or so I already spent more than my perceived monthly allotment for groceries (or whatever) I would throw in the towel and go back to just spending money without a plan.
My suggestion for a easy start is to simply track your spending for a month before you even draft your first written budget. Start a month out by writing down every time you spend money and what you spent it on. Don't judge yourself, simply track yourself. This first month is a time for observation, not intervention. Use this data as the base for your first budget. If it is less than what you make, then your off to a good start. Now just look as places you can trim some fat from your spending, so you can save, pay off debt, and possibly invest. If you spend more than you make, don't panic; all you have to do is be a little more aggressive with your "fat trimming" to get yourself into the black.
If you still fail with your next written budget, try again.