You Want a Budget. You Really, Really Do!
Posted by John Draper | Filed under Budgets, Take Control
I meet a lot of people – and hear from many more – who want to debate the validity of a budget. Second only to life insurance, budgets are the most misunderstood financial tool around. People see them as constraining, like too tight shoes you squeeze your oversized feet into. People seem them as rigid; think full body cast. People see them as impossible, as in, “I’ve made lots of budgets but they never work!”
Worst of all are the people who throw up their arms and sigh, “I can’t… I just can’t.” Hmmm.
So do you have dreams of things you’d like to have, places you’d like to go, experiences you’d like to… well… experience? If you want to get from here to there, and you’re not rolling in dough, the way to do it is to make a budget. Your budget is a plan; a plan for how you will spend your hard-earned moolah. Without the plan, you’re diving down the road with a blindfold on. And when you run into the ditch, the ooops can take a long time to fix.
So why does living on a budget makes sense?
First, a budget lets you see if you are living within your means. Once upon a time, before credit was as common as the cold, people knew whether or not they were living within their means because they either had money left over at the end of the month or they didn’t. With credit cards, lines of credit, and overdraft protection, it is much harder to see that you’re not making ends meet because you can fool yourself into thinking you’ve got it covered. However, if you have a budget and you faithfully plug your numbers in, the budget will tell you the truth.
So a budget gives you control over your money. You set money aside for specific purposes, be it accumulating money for your children’s education, saving for retirement, or building a stash of cash for that trip to Europe you’ve always wanted to take. Often these dreams and aspirations go ignored because by the time you get to the end of the month, the money is all gone.
Wouldn’t it be a relief to have money available to handle emergencies and unanticipated expenses when they crop up? Without a budget, people think of most of their less regular expenses as “unexpected.” Having forgotten about the car insurance bill that comes once a year, they’re shocked and surprised when the bill arrives. With a budget not only would you know when to expect the bill, you’d have set aside 1/12 of the total each month so paying it would be no problemo.
It’s also a lot harder to spend willy-nilly when you’re on a budget because you’ve accounted for where the money is going, down to the last red cent. All my budgets come out to zero at the bottom. If I find a category doesn’t work because there’s not enough in it, then I have to cut from another category to make the budget balance. But every cent is accounted for. No surprises. Course, not everyone is prepared to be a grown up and spend money consciously. Some people like the rush of spending on a whim. They hate budgets. But they’re the people most in need of a budget because they have no self-control.
And if you’re married to one of these people, a budget can be a marriage saver since it will reduce arguments about money. The budget serves as your guide so if you and your partner are having a squirmish over whether or not to buy something, you can always fall back on, “not until we put it in the budget.”
Perhaps the biggest benefit reported by the couples I’ve worked with is the fact that their stress is waaaay reduced and they find that they sleep better! Following a budget means you eliminate unnecessary worrying over money and debt. You’re confident that everything is figured out, and as long as you follow the budget, you’ve created a plan that will get you to where you want to be.
BTW, there’s some work involved in making a budget. If you look under Gail’s Tools on this page, you’ll see Gail’s Guide to Building a Budget. There are a lot of people who have found the Budget Worksheet, but haven’t read the instructions! You’re a bunch of dopes. If you think the budget worksheet and the Magic Jars are going to calculate themselves, you’re more delusional than I imagined a person could be. Wake up! This takes work! Remember this saying:
God helps those who help themselves.
Are you ready to help yourself? Or are you waiting for someone else to solve your problems for you?
October 28, 2008 at 6:07 am
Good morning Gail,
Budgets suck but they are essential! You can’t hide from the cold hard facts written on paper or on the computer! I continually rework my budget every month and still run into problems once in a while but I am getting better. I opened a savings account a couple of months ago and will open an emergency one by the end of November. When I calculated my winter budget, I was going to fall short every month. What did I do? As you say “find a second job”. I’m also in the process of quitting smoking which will save me 120.00/month on average! I’ve designated days where I don’t spend a dime, which forces me to plan everything in advance. I’m a slow learner hence the name “an ostrich named sam”, but by being honest with people it makes things easier. At my main work place they call me little Suzie or a Gail wannabe because I’m not only teaching myself, but others along the way! (I was very proud @ lunch that day). Thanks for all your advice!
October 28, 2008 at 7:13 am
I stick with a general budget of around $500 a month in my money – this goes to entertainment (including eating out), groceries, shopping, medicine (as it crops up) gifts, etc.
I play with that number to give myself a goal in each category, but if I am reaching the end of the month, and haven’t spent a lot in other categories, I will increase my entertainment budget to let me do fun things with friends (such as try to get rush tickets for an afternoon musical, use the 29 and under $20 tickets for the ballet or orchestra – things like that).
Any leftover in my budget goes into my savings on the 1st of the next month, since I’m still trying to get that up to my 6 month emergency fund.
Rather than seeing it as something that confines me, I view a budget as something that allows me to manipulate my money in a way that best suits me.
If I thought of it as confining, I might not be successful at using it – personally, I enjoy the accountability and playing with numbers. It keeps me on track and I check it most mornings before I leave for the day, since it reminds you “going to Tim Horton’s really isn’t necessary, bring a packet of oatmeal and don’t buy a donut!” (or, at least it reminds me that!)
October 28, 2008 at 7:46 am
I removed my name, but yes, everyone wants someone else to solve their problems for them. I know, I work for the government, and a lot of people out there have trouble reading the simplest of instructions.
October 28, 2008 at 9:34 am
I love my budget and jar system. My husband doesn’t love it so much, but he agrees that it is working well for us. Almost all of the categories are carrying a fair balance over each week, and our bank account has never looked so healthy. There is always money for what we need, our stress levels have definitely gone down. Most importantly, there is significant progress being made on our debt repayment, which we never thought we had money for before.
October 28, 2008 at 10:10 am
Hey Gail! Love the show and am trying to adopt the jar system myself but finding the budget worksheets a little confusing. As a single person, I can’t figure out how much to set aside for groceries etc. Is it based on the recommended percentages? Also, when I filled in the worksheets, some amounts were calculated weekly and some were monthly? Or did I calculate incorrectly? I have percentages of what my salary should go to (35% for housing etc.) and I assume it’s my NET income and not GROSS? I have been tracking my spending for the month of October to see what I DO spend so I have a place to start from. I did read all of the instructions but still ran into problems. This reminds me of a high school math problem (Farmer Ted had ten bushels of apples. If each bushel has 40 apples and he sells 45% of three bushels and gives away 2/3 of four bushels, how many apples does he have left?). Those math problems hurt my head – ha ha! Maybe I need to start over. It’s so confusing to me. I saved the worksheets on my desktop so I’ll try again.
Thanks Gail – you rock!
October 28, 2008 at 10:12 am
The problem with visitors having trouble following instructions is actually a simple usability issue with Gail’s website or more specifically with the budget page.
Wouldn’t it make sense to have the instructions there – where they actually are most relevant? Even a link on the budget page to Gail’s instructions would be useful. I don’t think doing this would be coddling or spoon feeding your visitors – just logical.
Seems silly to get upset at people when its really just poor design causing the issue.
October 28, 2008 at 10:54 am
I have a quick question regarding the Jar System… Currently my wife and i have $500 a week to spend on all non essentials .. and on Wednesday’s it’s our “pay day” where we withdraw the money and we do not use debit/CC at all. We use cash for everything, and if we run out, we have to wait till the following pay day.. so my question for the group is: What’s the diff between using the Jar System and the method we use… if you have $200 a week..who really cares if you spend $125 on food and 75 on entertainment or $200 on food.. the most important thing is you only spend $200.
Just interested to see what the group thinks.
cheers!
October 28, 2008 at 11:08 am
@ Sam – I think Gail’s overall message is to use some kind of system that works for you, so thats the most important thing. Also I think its hugely important to tracking actual costs versus budget (writing everything down) and track variance. I find it surprising that some months are generally more expensive than others, and not what I’d think (ie November is more expensive that December usually).
P.S. @ X — to be fair, the government has a lot of trouble writing simple instructions sometimes;)
October 28, 2008 at 11:39 am
Hi there, I totally believe in a budget and my husband and I are not bad (but also not frugal either) with managing our own money. However, I personally prefer to use credit card and here’s why. I can see everything that I spend! And then every month I pay it off completly so there’s no interest charges at all. I have an almost complete record of what I spend my money on, without any effort or excel sheet. Of course this only works because I pay it off.. but I can now clearly see by looking at the credit card statements that our biggest problem is restaurants. And an insanely expensive daycare, but that’s not an option…
October 28, 2008 at 11:59 am
Does anyone else use Wesabe? I find it is a good budget tracking system.
October 28, 2008 at 1:41 pm
First thing…I’m a government worker that loves her job and tries to help the public the best I can but sometimes you need to READ the instructions first before whining to me that you don’t understand. Second thing….I see the reality of people getting themselves into a financial mess that sometimes they can never get themselves out of. I have so many defendants that are regulars who have cash money places, credit card companies and friends and family (who I feel the most sorry for) in line waiting to garnish their wages that may never see a dime. I wish budgeting was part of the school curriculum because this very important topic is not taught at home.
October 28, 2008 at 1:58 pm
Sam, I agree that there is no diff between your system and the jar system (Gail always says you can trade money between jars) EXCEPT some people need more discipline than others and may want to keep track of what they spend at the LCBO vs. the grocery store for instance. You may find that you’ve budgeted too much for transportation if you consistently have money left over in that jar. You can adjust for that in your budget. How does that work with your method? Do you have money left at the end of the week and if so, do you know where it came from? Do you adjust your budget for that or do you just spend the money on something else? Just curious.
October 28, 2008 at 2:19 pm
@Sam – no jars – I used a similar system – I wrote about it in my “success” story. It worked for us. And if it works who is to say it is “wrong”? (Sorry if you disagree Gail)
@ioana – we have thought of doing this to maximize our credit card “rewards”. My only concern is the what ifs? What if something happens and you can’t pay off the credit card this month? That and it took me so long to see a credit card balance as a bad thing and not part of every day life that I panic when I see it go over $500!
October 28, 2008 at 3:00 pm
We use the budget worksheet to make sure we align exactly with the 100%& we use Gail’s Jar System.
We had to tweek the amounts on the budget that are calculated in the Jar section just enough so we only withdraw an even amount of cash for the week (our bank machine only does increments of $20’s).
Plus, our transportation amount is deducted from the jar total we withdraw as we leave that amount in the bank because we use “pay at the pump” debit but still use the amount only allotted from the jar #’s. (Time factor).
This system works for us and we only swipe our debit card three times a week. (x1 for cash for the whole week, x1 for my vehicle fuel, x1 for husband’s vehicle fuel).
October 28, 2008 at 3:16 pm
Small Claims Clerk: I heard a funny story this week…one of my friends is a teacher and she had someone come into the classroom to do an exersise on money management. They held up different items like soap, toilet paper etc. and had the children (gr.5) determine the price. She said the children were in complete disbelief and she described their reaction as almost turning into a riot. They actually thought dishsoap was a dollar and toilet paper two.
Everyyear I have the children in my daycare do a canned food drive throughout the neighbourhood on a PD day. This year since they are a bit older we are going to do a tour and mock grocery shopping. I just want them to see the difference between what their family’s bring home and what other families might. I used to do this activity with the Girl Guides.
ps: I too had trouble with the budget sheet..I didn’t ask questions online but it did take me three times to do it and had to find the instructions. I didn’t realize there were any because it was farther down rather than before the activity
October 28, 2008 at 4:49 pm
Thanks Erin – it’s nice to know I’m not only one having a hard time with the worksheet
I also wondered in the debt repayment category – do I include just the minimum payments or what I actually pay?
I need a master class with Gail – perhaps an online tutorial?
October 28, 2008 at 6:59 pm
@Kelly – the cash budget for us has been a blessing.. if there is money at the end of the week, then we can treat ourselves… go out, buy the kids clothes, or save it for something we need (new toys, or as Gail would call it “CRAP”) – but knowing that we have only cash to spend, makes us spend a whole lot less. I realize we are very blessed, we put away over 20% of my net income for retirement and RESP / no debt , so there is no guilt at the end of the week if we do waste that money -:) – BUT having said that, i realize that what is keeping us in a good place, is the cash budget.. since going into debt is not an option…. it’s like being an addict… the temptation is always there, but we have learned to be very disciplined .. the thought of being in over 80K in consumer debt like we were 9 years ago scares the crap out of us!
October 28, 2008 at 9:28 pm
I think that I need to stop the ‘reward points’ credit card shopping and go strictly to cash starting in November…I’m addicted to the points I think, but when I pay off my grocery and gas credit card shopping in full, I’m left with nothing to pay extra towards the other 2 credit cards I let creep up there over the past couple of years. Every month I end up with $20-$40 in ‘grocery’ points, and I’ve got enough Aeroplan points to go out East, but I think I have to use those points for gift buying this year.
I was putting away my emergency fund, but the Winter tire purchase just ate all of it up so I’m starting from scratch and feeling very disappointed with myself now because of it.
How do you all stay so charged and on top of things when sometimes you look at the end of the month and realize instead of getting so many steps closer to being debt-free that things happened that drove you beyond the original debt-line?? Emergency winter gear shopping today left me $300 over my budget because I was waiting to get good deals on things. The coats a couple of weeks ago were half price for the kids, and I’m foregoing winter stuff for myself for the umpteenth year in a row, but going further into debt this month is depressing and I so want to spend to my heart’s content, knowing full well I’ll feel terrible for it afterwards.
Maybe I should post in the Your Story section to get advice on how to get back on the wagon when you fall off hard some months. BTW, who the heck figured 4 pieces of rubber would be so bloody costly! Add to that an emergency root canal and winter clothing as mentioned, and I don’t even see the light anymore. Debt sucks when you take one step forward and 3 steps back!
October 28, 2008 at 10:25 pm
Michelle: But wasn’t it great that you had the emergency fund to pay for your tyres? Otherwise you would have gone deeper into debt. And now you know how much to budget and put aside every month/week for the next set. Do try to pay with cash (use the jars!), cards cause spending amnesia!
October 28, 2008 at 10:28 pm
to other Michelle,
Have you tried Gail’s budget worksheet ? and do you get your numbers to the 100%? It’s a great way to see the real % of your housing costs, etc. and where you spend way more than you really should. We find our motivation comes from the budget worksheet! It’ll keep you in line!
: ). Good luck! and start setting aside small amounts for next winter NOW for yourself. : ).
October 28, 2008 at 10:39 pm
I’m reorganizing my files right now, after letting the personal and business mailings slip into the overflowing ‘Inbox’ file on my desk at home. I always feel so good after a clean-up and checking my cc balances and savings balances. I think that tomorrow’s on-line check-up is going to be all red unfortunately, but a good glass of wine has left me thinking tomorrow’s a new day to start climbing back up the hill. Thanks for the advice, and Gail, God luv you! I know you’re going through your own ’shite’ right now, but focussing on everyone elses cow patties helps doesn’t it??! Thank you for helping out, and I’m sure you’ve got loads of excellent friends, both real and virtual from this site, to give you the dusting off and pats on the back you need to know you’re a fab-u-lous woman. Lots of hugs (maybe that’s the clarity that comes with getting organized and tidied with bills and payments this evening…or the wine??!)
October 28, 2008 at 10:54 pm
Michelle:
I agree with Ajana: you had the money to pay for the tires, good!
What went wrong is that your budget probably did not account for the need of winter tires. Emergencies versus expected expenses can be difficult to differentiate, but learn from it. From now on, at least 10-20% of transport money is kept for car maintenance and repairs. Gail mentions this somewhere on the website.
I work a second job. I often hope to set all the money aside for debt repayment beyond the budget amount, but lately I found myself using some of it for unforeseen events and some personal choice expenses (subjective definition of need). Tough year!
A second job is very helpful to build an emergency fund or get something extra you need or really really want.
The important part of budgeting is cross-checking budget with reality. If you find yourself under or over, revisit the budget allocation. If you should have known about a ‘need’ that busted your budget, spend time guessing which other needs might come up (come up with 3-5 max at the beginning).
Budgeting works if you tweak things as needed. The tricky part is to find the budget that works (is sustainable, is representative of your expenses).
You will get there!
October 29, 2008 at 4:37 am
In the UK, a ‘card’ has been introduced in one shop for low income earners… and/or people who don’t want to budget. The Easy Shop Card charges 35 UK pounds to borrow 100 pounds on the card if borrowers repay it at a rate of 5 pounds a week over 27 weeks, giving an APR of 222.7%!
The APR falls to 82.9% if the money is repaid over 100 weeks at a weekly rate of 1.70 pounds.
The company which came up with it calls it a “loan” but that was after it was lambasted.
The message is to budget or be prepared to pay for through the nose big time. There’s always someone who’s ready to take advantage.
October 31, 2008 at 11:35 am
My main points are:
1) If you have the discipline to do so properly, using your credit cards for your purchases can actually get your debt paid down faster
2) Credit cards are NOT something you only pay once at the end of the month! You can pay them before your purchases are put on them, and not worry about paying a large bill at the end of the month.
And now for the explanation:
If you’re the kind of person who knows that keeping track of your money is a weakness for you, then by all means deal with cash only. But if you’re the kind of person who knows that you can keep track of your spending pretty well, I recommend using your credit cards to accumulate rewards. I personally use my credit card for every purchase, big or small, but I never have a balance or, in fact, anything to pay off at the end of the month.
The reason for this is that I have a no-fee bank account that lets me pay bills as often as I want. So, as soon as I get home from shopping, I take out my receipts and pay them all, one at a time.
(Example: I just went shopping at three stores, and have three receipts. One is for $6.76, one is for $22.07, and one is for $15.61. I go online and pay my credit card bill, BEFORE the charge has even shown up, three times: once for $6.76, once for $22.07, and once for $15.61. That way, when I check my credit card balance online a day later, I can see three charges and three payments, all of which cancel each other out.)
I do put a set amount onto my credit card at the beginning of each month. This is the amount I have budgeted for my bills (cable, telephone, etc.), and includes an extra $5 tacked on per bill in case that bill is slightly more expensive. Then I check online frequently to see if the cable bill really was what I thought it should be. If it isn’t, I’ll call the company and get it straightened out immediately.
My “left over” money at the end of the month happens if my bills are under the amount I budgeted and put onto the card. Most often, it’s built up from accumulating the extra $5 per bill that I didn’t have to use. With that money, I sometimes buy a small treat for myself (a book, a take-out meal). However, since I’m in self-debt (trying to pay back my emergency fund), I’ll usually change the amount I put onto my credit card next month and put my “extra” money (the money I would have put onto the credit card but no longer need to) into my emergency fund.
This may seem like a convoluted way of getting your bills paid, but meanwhile I accumulate points that I can use towards groceries from my purchases on my credit card. When I have enough, I can use the money I have budgeted for groceries to pay my self-debt and use the points to buy groceries instead.
October 31, 2008 at 11:36 am
My main points are:
1) If you have the discipline to do so properly, using your credit cards for your purchases can actually get your debt paid down faster
2) Credit cards are NOT something you only pay once at the end of the month! You can pay them before your purchases are put on them, and not worry about paying a large bill at the end of the month.
And now for the explanation:
If you’re the kind of person who knows that keeping track of your money is a weakness for you, then by all means deal with cash only. But if you’re the kind of person who knows that you can keep track of your spending pretty well, I recommend using your credit cards to accumulate rewards. I personally use my credit card for every purchase, big or small, but I never have a balance or, in fact, anything to pay off at the end of the month.
The reason for this is that I have a no-fee bank account that lets me pay bills as often as I want. So, as soon as I get home from shopping, I take out my receipts and pay them all, one at a time.
(Example: I just went shopping at three stores, and have three receipts. One is for $6.76, one is for $22.07, and one is for $15.61. I go online and pay my credit card bill, BEFORE the charge has even shown up, three times: once for $6.76, once for $22.07, and once for $15.61. That way, when I check my credit card balance online a day later, I can see three charges and three payments, all of which cancel each other out.)
I do put a set amount onto my credit card at the beginning of each month. This is the amount I have budgeted for my bills (cable, telephone, etc.), and includes an extra $5 tacked on per bill in case that bill is slightly more expensive. Then I check online frequently to see if the cable bill really was what I thought it should be. If it isn’t, I’ll call the company and get it straightened out immediately.
My “left over” money at the end of the month happens if my bills are under the amount I budgeted and put onto the card. Most often, it’s built up from accumulating the extra $5 per bill that I didn’t have to use. With that money, I sometimes buy a small treat for myself (a book, a take-out meal). However, since I’m in self-debt (trying to pay back my emergency fund), I’ll usually change the amount I put onto my credit card next month and put my “extra” money (the money I would have put onto the credit card but no longer need to) into my emergency fund.
This may seem like a convoluted way of getting your bills paid, but meanwhile I accumulate points, that I can use towards groceries, from my purchases on my credit card. When I have enough, I can use the money I have budgeted for groceries to pay my self-debt and use the points to buy groceries instead.
October 31, 2008 at 11:42 am
I’m sorry about posting twice…it was a mistake. Gail, I wonder if you could remove the extraneous post, and this post as well, for me? Thank you.
November 2, 2008 at 1:11 pm
I just wanted to say that I found using Gail’s worksheets easy and very helpful. You just have to follow the instructions carefully, then it all makes sense. The time investment is worth it and you learn skill of budget building as well. I know that finances are stressful to begin with — if it’s confusing, just read over the instructions again – and don’t get discouraged.
BTW, I don’t agree that there is a ‘usability’ or ‘poor design’ issue in Gail’s website.