Do you get hot sweats, a cold fever, a nervous stomach, or something worse
when you peer into your checking account on Tuesday and find it
empty — then realize that payday isn’t until Friday?
You’re suffering from Paycheck-to-Paycheck Syndrome, a malady that can
affect anyone who regularly runs short of money in the bank — regardless
of income. Associated symptoms include sleepless nights, high blood
pressure, fits of guilt, and denial.
The cure is simple, but it isn’t easy. Putting together a workable budget
takes time, effort, and discipline. But it doesn’t take long to get started
on the road to fiscal responsibility. Spend a minute and learn the ins and
outs of getting your budget under control:
0:60 Make an educated guess
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Before you get started, make the process more suspenseful and fun by
jotting down how much you think you’re spending on food, entertainment,
travel, clothing, charity, investing, etc. Then record how much you
want to spend on them. That’ll put everything that follows into perspective.
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0:54 Look at your past spending habits
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This is where it starts getting tough. Look back at your bills over the past
few months, and identify where your money went. Don’t worry if you can’t
account for everything you spent — that’s typical, and you’ll catch that in
the next step. For now, just look at what you’re spending all your money
on. If it’s mostly going toward payments on bad debt — things like credit
card bills or car loans — then you’re starting out every month in the hole.
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0:46 Start gathering information
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It sounds simple, but it takes a lot of work: For one to three months, record
all your financial inflows and outflows. (One month will do, but a few more
will maximize accuracy.) Try to account for big expenses that occur once or
twice a year, such as car insurance, too. Jot down how much they amount to
per month. During this two- or three-month period, save every single receipt
you get for any expense. If you don’t normally ask for or keep receipts, do
so during this period. Also, carry a small notebook to write down any cash
transactions. If you spend a few dollars for coffee at a local coffee shop
each morning, record each such transaction. If you do some odd jobs for a
few extra dollars now and then, record that, too.
Make sure you’re accounting for all your expenses. Even a $12 check written
for a magazine subscription should be counted. As you’re classifying
expenses, notice that some of them are fixed, while others are more flexible.
0:33 Get organized
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After the information-collecting months are finished, sit down with all your
records — the big bunch of receipts, your checkbook, your pay stubs, credit
card and bill statements, and that notebook of cash transactions. You’ll also
want a pad of paper, a pen or pencil, and a calculator. Start making lists of all
the inflows and outflows. Group them into categories and total the amounts
for each item. For example, you might list all your eating-out expenses and
all your supermarket expenses and lump them together in a “Food” category.
Then calculate what percentage of your income is spent on food. (Of
course, if you fine-tune things more, separating supermarket and eating-out
expenses, for example, that’s even better.)
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0:18 See how you’re doing
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Now, step back and see what you’ve got. You should be looking at a fascinating
detailed record of where your money comes from and where it goes. Compare
your actual expenses with your initial estimates and see how close you were.
Assess whether you’re saving and investing as much as you want to.
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0:11 Look for ways to improve
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If you’re not happy with the results, the next step is to try to find expenses you
can cut back on. You might be able to hit your savings goal simply by cutting out
HBO and your subscription to People magazine. Buy a water filter instead of endless
jugs of bottled water. Use a fan instead of air conditioning. You might be able to
save a tidy sum by giving slightly less extravagant gifts. Also, don’t assume that
fixed expenses are completely fixed. You might be able to refinance a loan at a
lower rate, or do a little comparison-shopping to turn up a less expensive insurance policy.
.You might even discover that by spending less on some things you don’t care so
much about, you can spend more on things you care a lot about.
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0:03 Relax
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With your budget under control and your future expenses anticipated, you
should start to feel those cold sweats and nervous jitters go away. You may
even feel a warm glow when you write a check without worry. You may
positively jump for joy when you deposit a paycheck and find that some of
last month’s budget is still in the account. You’re cured!
.Got another minute? Then click here to simplify your finances