Apply ‘Take-Charge’ Budgeting

Scenario
Gregory and Juliet don’t believe they need a budget. After all, with rare exception, they only buy things they absolutely need. Since there’s not that much extra cash left over anyway, they justify, why hassle with a budget? Plus, the times they have considered a budget weren’t particularly exciting, they recall. They feel that maintaining a budget is too time consuming, too boring, too depressing, and too confining. Consequently, they hardly even talk about it, except in a crisis. So on they go, making it month to month, hoping that things will be better, someday. If you want to experience the financial success you deserve, you’re going to have to face one hard fact: before we can move to the next level financially, we have to responsibly manage the resources we already control.

There is a way to handle your finances wisely, thus preparing yourself for the next level, that’s relatively painless. It’s called “take-charge” budgeting and it goes somewhat against the grain of traditional thinking. Rather than requiring a tedious, strict spending plan (that you may not stick to anyway), the “take-charge” budgeting alternative focuses mainly on a few simple habits, which you can begin right away, that alter your “in-the-moment” spending awareness. You know what to do. The key to success is learning how to get yourself to do it. These “take-charge” habits, rather than demanding that you deprive yourself, actually allow you to have more of the things you want by encouraging you to simply pay attention to how you direct your economic power.
There are five steps to successful take-charge budgeting:
1. Categorise your expenses
2. Determine your “real” spendable income
3. Set “control” spending amounts
4. WRITE IT DOWN
5. Prioritise each expense as it arises

I think you’ll find that if you follow these take-charge steps, your goals will naturally follow.

Categorise your expenses

Scenario
Gregory  and Juliet are willing to give an honest effort in order to take control of their spending. They’ve agreed to give budgeting a try, as long as it doesn’t cause an argument — or give them a rash. Truth is, however, they don’t know where to start. “Spend less” seems an appropriate command, but where? Where could they possibly cut down? What could they possibly cut out? They already feel they’re quite disciplined. Where could they possibly find room to give? The first step to any sort of change is assessment: facing the reality of where you are now. Categorising your expenses is a quick activity that gets you in the mind-set of taking “spending inventory.” This is not a judgment; it’s just an honest peek into your spending portfolio.

From the list following, you’ll mark each category that regularly applies to your spending patterns a quick view of your chequebook register or bank statement will help.The idea is to begin seeing each purchase or expense actually falling into a category. We’re all familiar with rent or mortgage expenses, but where do magazine subscriptions fall? Perhaps business or entertainment?  Is that recent airline ticket purchase for vacation or business? Are parking dues under transportation or are they legitimate business  expenses? One of the habits I’m trying to encourage has to do with mentally deciding where you’re spending your financial resources. Does the bulk of your monthly income go to food? Doubtful. Clothing? No. Most likely, the bulk of your monthly income goes toward housing and automobile expenses. So, the next questions you should be asking are: “Is there a way to reduce these ‘fixed’ expenses? Are some of them business-related or tax-deductible?” That sort of habitual thinking and “paying attention” holds huge financial gains.

Categorising your expenses allows you to “objectively” view your whole spending map, which is powerful knowledge when plotting a forward course. Remember, as the saying goes, “The farther backward you look, the farther forward you are likely to see.”
It’s easy. Just mark the categories you feel your spending falls under.
• Quickly categorise your expenses
• Practice mentally categorising each expense as it arises
Determine Your “Real” Spendable Income

Scenario
Gregory and Juliet are starting to get the picture. Their incomes are relatively fixed, and they know those amounts to the penny, they think; its their expenses that are too them the curveballs. They spend considerable time bringing in income, but very little monitoring how it goes out. Still, they believe, more income would probably do the trick; this dull budgeting work would be left behind if only their salaries would soar. The single biggest is in thinking that more income will solve the problem. That’s false. If someone is mismanaging their resources at a modest level, their problems will only grow with their income level. Why do you think so many big-earning people in our society go broke? Usually, it’s because they didn’t develop sound habits early on, when their situation was manageable, so their money problems quickly leap over their heads. If someone can’t keep a modest budget, are they really qualified to handle substantial sums? You know the answer. My point is this: if you’re starting small, you really are at a huge advantage.

You can practice and master good financial and budgeting skills while your situation is solidly within your grasp. Then, as your skills grow (which is really the only way your money situation will grow), you can begin to handle more and bigger finances. An important step in “take-charge” budgeting is to determine your “real” spendable income. I know you know your salary. That’s not your “real” spendable income. Remember, you’ve already committed to a certain level of housing and auto expense; you’ve already been plunked into a certain tax bracket; and your employer already deducts moneys for medical and dental, NIS, and PAYE. What’s left over is your “real” spendable income.

Second, consider any additional sources of income, such as alimony, child support, outside ventures and royalties, and property income. Again, don’t forget to subtract for taxes and deductions. Finally, deduct your “fixed expenses,” such as housing, car, utilities, food, and clothing, to arrive at a total “real” spendable income figure. Please don’t be discouraged by these figures. As we’ve already discussed, you most likely already have everything you really need. In fact, you’ll find that you don’t have to radically alter your lifestyle in order to succeed financially. You just have to “tweak” your habits a bit. Money success is not a huge undertaking, you simply have to maximise your existing economic power; over time, it’s just that “slight edge” that will give you the biggest results.

(CONTINUED NEXT WEEK)