Notice, I said “feeling” poor, not truly being poor. Although, even truly poor people would benefit from a budget. Lately, our friends and family members have been sharing financial information with us out of the blue. One mentions never being able to get ahead, while another tells us they’re just getting by. Both of these friends have jobs and make money. However, a common thread among both people is they have no clue how much they spend each month.
Well no wonder you feel poor!
It blows my mind when people say they don’t know how much they spend each month. If you don’t know that figure, how can you confidently pay bills or live day-to-day without being sure you’re not going into debt? You can’t and that’s the bottom line. In the particular case of these people, one thing they have going against them is that they don’t share finances with their spouse. Each lives an independent, financial life not knowing where all the money goes that their spouse makes. When you have limited funds to work with, this is a recipe for disaster.
An obvious first solution for these folks is transparency; sharing finances with each other. Even if they want to keep their bank accounts separate, it’s important to know how much money is coming into the household. The next step is to track expenses. Once you know how much money is going out, then preparing a budget is key to getting on track with your finances.
Budgeting doesn’t have to be cumbersome, it can be as simple as dividing up income into expense categories – things that must be paid versus things that are “extras.” Let’s say couple A brings in $4,200 a month. They can divide their “must be paid” expenses, such as housing, utilities, debt payments, insurance, savings and car expenses into one group and groceries, eating out, and extra spending money into another. If their “must be paid” expenses comes out to say $3,000, that leaves them $1,200 to divvy up into the other expenses.
Notice, I’m adding savings into the “must be paid” category. Now, I can tell you that based on the conversations we’ve had with these couples, there is no savings category to speak of, but that’s partly because they have no clue where their money is going. Once they track their income and expenses, I’m guessing they’ll find they have just enough to also put something away into savings.
If they actually took the time to go through these three steps (that take some work, I’ll admit), they might find they’re not nearly as “broke” as they think they are with just a little perseverance. There’s no excuse for not budgeting!
How did you learn to budget? Is it cumbersome for you, or do you have a system that’s easy?