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The Secret to Becoming Financially Fit

March 7, 2016

 


     According to CNN.com, 76% of Americans live paycheck to paycheck*. It has become normal for people to scrape up pennies as they count down the days to pay day. Have you ever gotten to the end of your month and wondered, "Where did my money go?" I know I have. 

 

     Taking control of your cash needs to be intentional. Your money isn't going to give itself boundaries. Spending just $5 here and $20 there adds up fast! It's time to take control and tell your money what to do. Here are four ways a budget can whip your finances into shape:

 

 

1. A Budget is Written Before The Month Begins

 

     A builder goes through a lot of preparation when constructing a house. He must create a blueprint, select the amount of materials needed, and ensure that the crew are all on the same page. A lot of behind the scenes work must be done before the first nail is hammered.

 

     Imagine if that builder decided to skip these steps. What if he just showed up and started throwing pieces together? He'd end up with a lot of wasted materials and a subpar product. 

 

     Just a like a builder must plan each detail when constructing a home, so must we be diligent in making a plan for our money. Each month, before your paycheck arrives, sit down and create a detailed budget. Your entire monthly income should be accounted for. How much will you spend on groceries? What about restaurants and clothing? You decide where your money is going so it doesn't decide for you. 

 

 

 

2. A Budget Creates Boundaries

 

     There is one side effect to taking control of your budget; it gets you under control too. Having a budget sets spending limitations on you. It's so easy for our spending to get out of control if we don't set that boundary for ourselves. 

 

     It's time for a confession: I'm in love with fast food. I can easily pass on desserts and sweets, but it's difficult for me to turn down a cheeseburger and fries. When I was in college, I ate fast food almost every day. The problem was, I didn't have the income to sustain that lifestyle; I just blindly swiped my card whether I had the money or not. 

 

     Last year, CNN reported that Bank of America, Wells Fargo, and Chase had earned $1.1 billion on overdraft fees within the first three months of 2015**. That's just on overdrafts! I'm willing to bet that the majority of those fees were not a result of income problems; they were money management problems.

 

     I don't even want to know how much I actually spent on those burgers.

 

 

3. A Budget Gives You Permission to Spend

 

     Have you ever bought something you couldn't afford, and then felt guilty about it later? Every time you wear that shirt you're reminded of that shameful purchase. A budget can take this weight off of your shoulders!

 

     If you budget $100 a month for clothing, then you get to spend $100 on clothing! By setting that amount aside at the beginning of the month, you know that you can use it while still taking care of all of your other needs. You assigned that money to be used for clothes. By buying yourself a new pair of shoes, you're just following the plan that you created. Remember, you decide where your money goes, not the other way around.

 

     My wife and I add a category for "fun money" into our monthly budget. It's a set amount each month that we can spend on things we individually want. This means I can buy myself a new PS4 game without completely throwing off our budget. That money was already set aside before hand, so I'm allowed to spend it however I want. 

 

 

4. A Budget Makes You Feel Like You Got a Raise

 

     That's right, a budget is going to make you think you got a raise! When you sit down to create your first budget, you're going to realize how much money you actually make. Once we stop out-spending our income, we find a lot of extra cash left over. 

 

     Before you started planning out your month, you may not have known exactly how much you'd been spending on a certain category. Those restaurant bills may seem small at the time, but they can add up quickly. When you set limits on each category, extra money is going to appear. This is because you're keeping track of how much you can spend. If you burn through the $100 you budgeted for entertainment within the first week, it's pretty obvious that you've become accustomed to spending way more than that. 

 

     Take that extra money you find and put it toward your debt or savings. If you're debt free, start investing those dollars into good mutual funds. The power of compound interest can turn that $20 meal into thousands. 

 

 

     If you've never budgeted before, give it a try.  It may seem cumbersome at first, but keep working at it! In three months time, you will be budgeting down to your last penny. You'll be amazed at how many dollars escape when you don't specifically tell them where to go. Like a sock in the dryer, money likes to disappear when our guard is down. Creating a monthly outline gives each dollar an assignment and prevents you from spending beyond your means. If you need help creating a budget, EveryDollar is a great free online resource. It's time to put your money to work! 

 

*http://money.cnn.com/2015/05/27/investing/overdraft-fees-over-1-billion-big-banks/

 

**http://money.cnn.com/2013/06/24/pf/emergency-savings/

 

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