{"id":1669,"date":"2008-03-10T05:00:32","date_gmt":"2008-03-10T13:00:32","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/2008\/03\/10\/budgeting-the-most-important-thing-you-can-do-with-your-money\/"},"modified":"2023-09-28T15:33:03","modified_gmt":"2023-09-28T21:33:03","slug":"budgeting-the-most-important-thing-you-can-do-with-your-money","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/budgeting-the-most-important-thing-you-can-do-with-your-money\/","title":{"rendered":"Budgeting: The most important thing you can do with your money"},"content":{"rendered":"
This article was written by Joshua Timberman<\/b>, whose passion for personal finance started after reading Dave Ramsey’s The Total Money Makeover<\/a><\/b>. He became debt-free in November. He is the Financial Peace University<\/a> coordinator at his church, and is an active participant at Get Rich Slowly and other personal finance blogs.<\/i><\/p>\n The most important thing to do with your money is to give it a plan. A budget. A spending plan<\/a>. A cash-flow plan. Call it what you will, but having a plan for how you spend money will set you free to actually enjoy it.<\/p>\n Everyone who has any kind of income needs a budget. Successful companies and governments manage their money with budgets. Even un<\/i>successful companies and governments do budgets (though it can be argued they don’t have the right approach). To get ahead with money, you need to manage it. And that is what a budget really is: Money management, on purpose, written down.<\/p>\n If you don’t write down how you’re going to spend the money you make, it will walk out the door on impulsive purchases. This leads to spending more than you can make, and leads to bad money habits like “90-days, same as cash” financing on stupid things, or ridiculous car loans because you had that new-car itch<\/a>.<\/p>\n I plan my impulses. I build into my budget a set amount of money that I can spend on whatever I want without guilt. This is a relatively small amount \u2014 usually $100 per month \u2014 but the important thing is that I’m doing it on purpose<\/i>, and not letting my impulsiveness get the better of me. I’ve been doing this for three years now, so I have some practice, but I didn’t start with a lot of experience, and it didn’t work for a few months, but things came together eventually.<\/p>\n Making a budget work takes effort. I won’t hide that fact. Experts talk about different methods. Some will say use theirs, and others will say use whatever works. I will share the method I use. I recommend it because after trying several others, this works the best for me and my wife, and for the people I have worked with through Dave Ramsey’s Financial Peace University at our church. Dave’s idea is very simple.<\/p>\n Planning the entire month’s income on paper is fairly straightforward. Yes, it helps if you’re salaried because you know how much you’ll make each month. If you don’t know how much you’ll make each month due to commission or hourly wages, focus on the necessities first.<\/p>\n Write everything down. Dave makes his forms freely available<\/a> on his website. Print these out and use them. These cover a lot of categories that many people may forget. By writing down the budget on paper, it becomes more real. You’re more likely to actually live by what the paper says, especially if you pin it to a bulletin board you see every day. (Watch for a follow-up post on more modern methods for cash-flow planning.)<\/p>\n The zero-based plan means that every dollar, every penny is spent. This makes some people nervous. I was skeptical about this at first as well: \u201cWhat if I bounce a check?\u201d \u201cWhat if I overdraft?\u201d<\/p>\n Here’s the thing. When you tell every dollar what to do, and then you actually live that way, you know that a check will never bounce again, and you won’t overdraft your account. We don’t even have \u201coverdraft protection\u201d on our checking account because we don’t need it. While you’re getting used to budgeting, give yourself extra money in the areas where you know you spend more, especially food and entertainment. Remember that the goal is a balanced budget, so in order to reach zero at the end, you’ll need to adjust categories accordingly.<\/p>\n When you look at Dave’s form, you’ll see that it has a certain order:<\/p>\n An accountability partner is your spouse or significant other, or a friend or relative that will be honest with you and dish out the tough love. If someone doesn’t love you enough to hurt your feelings about bad choices you’re making, they’re not qualified to be an accountability partner. For married couples, it is absolutely imperative that both people are on board with the financial planning, or disaster will strike the land.<\/p>\n Once the budget is prepared, and agreed upon by you and your spouse or accountability partner, it isn’t necessarily set in stone. I know that life happens. Do yourself a favor and set aside some money each month for incidental expenses. This shouldn’t be too much, as you should have an emergency fund to cover the larger events. At least $1000 if you’re still in debt, 3-6 months expenses if not. Large events do not include Christmas! That happens every year at the same time, so plan for it!<\/p>\n To get things rolling with your budget, first download Dave Ramsey’s cash flow plan forms<\/a>. The \u201cmonthly cash flow planning\u201d form is the main one for most people. Further instructions are included on the form. For those with irregular income, use the \u201cirregular income budget<\/a>\u201d form on the same page. Instructions are also included with that.<\/p>\n Get started today! It doesn’t matter that we’re in the middle of a month. And keep in mind your budget won’t work at first. It didn’t for us, and even after three years we still make mistakes. I can tell you though, if we hadn’t kept at it, we wouldn’t have the sense of freedom we have. Telling your money what to do makes it go further. Plan your spending every single month and you’ll find the freedom I’m talking about, and you’ll realize you make more than you thought.<\/p>\n","protected":false},"excerpt":{"rendered":" This article was written by Joshua Timberman<\/b>, whose passion for personal finance started after reading Dave Ramsey’s The Total Money Makeover<\/a><\/b>. He became debt-free in November. He is the Financial Peace University<\/a> coordinator at his church, and is an active participant at Get Rich Slowly and other personal finance blogs.<\/i><\/p>\nManaging Money and Impulses<\/h2>\n
<\/span>The Cash-Flow Planning Method<\/span><\/h2>\n
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<\/span>Planning Your Budget on Paper<\/span><\/h2>\n
<\/span>Creating a Zero-Based Budget<\/span><\/h2>\n
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<\/span>Working With a Partner<\/span><\/h2>\n
<\/span>Expecting the Unexpected<\/span><\/h2>\n
<\/span>Start Now!<\/span><\/h2>\n