Finance Pillar - The Very Beginning

In the musical, "The Sound of Music," Maria teaches the Van Trapp children how to sing.  To begin her lesson she starts with these words, "Let's start a the very beginning, a very good place to start."  That's where I'm going to start today with this week's post.

The beginning of every good financial plan is a budget.  Budgeting is so extremely important to get right, that until you get that down you shouldn't move forward with anything else (attention Washington...).  But what exactly is a budget?  My favorite definition of a budget comes from John C. Maxwell.  He says, "A budget is telling your money where to go instead of wondering where it went."  So many people wonder at the end of the month where their money went.  If you have a good budget that shouldn't even be a question.

So what constitutes a good budget, and what are the steps to getting there?

1. Sit down and make your budget with your spouse.  The wonderful thing about marriage is that there are two brains in the equation.  The hard thing about marriage is that there are two brains in the equation.  Anyone who has been married longer than the "honeymoon" period can tell you that living with another person can be so rewarding, yet so difficult.  Sometimes it's hard to understand that other people think other things are important than what we think are important.  But when we sit down together with our spouse, have an adult conversation, and both make compromises, a budget can be a wonderful thing.  Both parties are on the same page, have a common goal, and life is just so much sweeter.  Bottom line: until you both sit down and make a plan together, your budget is doomed to failure.
2. Write down your Monthly Income.  You need to know how much you make.  For most people this amount is the same, or at least very close, every month.  Write down the days that that money will come in, and the amounts.
3. Write down Reoccurring Expenses.  Every month you have certain bills that will always be there, and will always be about the same amount.  These include mortgage payments/rent, utility bills, insurance premiums, car payments, etc.
4. Write down monthly expenses that could vary.  This could include date nights, food, gasoline, clothing expenses, etc.  Notice that I include food and gasoline.  Set a certain realistic amount of money you are going to spend on these things.  Don't just wing it.  If you set that a certain dollar amount, a magical thing happens, you'll stay within that amount.
5. Write down expenses that don't occur every month.  There are things that don't happen every month.  Things like Birthdays, Christmas, Vacation, Annual insurance premiums, etc.  Save up for these so they don't catch you by surprise when they come.  For example, many people pay for car insurance once a year.  That could be a big surprise when it comes in the mail for some people.  To keep that from happening split it up into "monthly payments," and put it in an envelop or something until it comes.  So if I paid $600 a year for car insurance, I would put $50 a month in an envelop in my sock drawer until the bill came around.
6. Add it all up.  Now, add up all your expenses and subtract it from your income.  If the number is negative than it's time to start during some surgery.  You need to go back to your budget and figure out how to get it positive.  Whether that means increasing you income by getting a second or new job, or decreasing your outgo by cutting stuff out, you need to get it at least to zero.  And no, a credit card is not the way to do that.
7. Record and revise.  For the next month record your spending.  You do this for two reasons.  First, it helps keep you accountable to yourself and your spouse.  Second, you might have not planned right; maybe you didn't need to put aside $100 a month for chocolate covered peanuts.  This gives you the data that you need to revise your budget next month.  After a few months, you and your spouse should get things down.

It's as easy as that.  To make a budget work remember a few things:

1. Stick with the budget.  If you go through all the effort to make a budget, then the next day completely go out of bounds, then you haven't accomplished anything.
2. A good budget is simple and not time consuming.  I love spreadsheets.  Love them, love them, love them.  I might name the second child Excel.  But, my wife doesn't.  Keep your budget as simple as possible.
3. It must be written down.  Just like any goal, if it's not written down it's not official.
4. There must be compromise, both parties must feel like they win.  Remember, there are two people to this marriage with different needs and wants.  Staying within your budget, make it so both people feel like they win something with the budget.
5. Remember to have fun.  Plan fun money.  If you don't, your budget will become a source of pain, not joy.  A person in pain gets rid of the pain as soon as possible.  So make sure you budget in fun money.

There is so much more I wanted to write, but it's already getting too long.  If you have any questions, write me a comment on this post, and I'll do my best to answer it.  Until next week, God bless.

Zach

Example Budget
Item	Amount
Monthly Income	$3600
Tithing	-$400
Mortgage	-$800
Utilities	-$250
Cell Phone	-$200
Food	-$400
Gas	-$500
Debt Payment	-$400
Transfers into Savings	-$150
Car Insurance	-$100
Life Insurance	-$100
Date Night	-$100
Monthly Clothing Savings	-$50
Christmas Savings	-$100
Vacation	-$50
Left over at end of month	$0