Monday, March 22, 2010

I can't do a budget, because the numbers won't fit

Would you believe that people actually come to me for financial tips now?
I know crazy.

A while ago there was a couple that came over and she was asking for tips on how to make their money stretch further. I suggested the basics, get on a budget, use the envelope system [I'll write more about the envelope system later] save for emergencies etc.

Meanwhile her husband is sitting there and I can just see him rolling his eyes. They (according to him)don't make enough money to make ends meet.

So what is a budget and why do you need one?

Let's look at it this way, money is a resource. The book "The Four Laws of Debt Free Prosperity" compares money to water. If you don't control it, it goes away.

A budget is like the pipes in our homes that lead water to where we want it to go.

Similarly, a written budget, shows us how the money comes in and then we decide where that money is going to go.

When you have a low income, and high expenses, or a high income and even higher expenses, it is vital that you tell your money where to go instead of just letting it go wherever.

Can you imagine trying to get water to your house without using pipes?

Well then don't manage your money that way!

To be clear I didn't look at this particular couples budget. I really don't know if they had the income to cover their necessities or not. But here's what happened:

Earlier that year four of their kids and the father had gotten sick. They had a total of $220 that they needed to pay out of pocket for their co-pays and deductibles.

He was left out of work for a few days.

When I suggested that they save a baby emergency fund (first step of the Dave Ramsey plan) he didn't think it could be done with their income.

And of course at the time they didn't have the emergency fund anyway, so it was too late to change that.

So then what happened?
Well, currently they are making payments on their medical debts.

So what he was telling me was that they couldn't save the money for an emergency, but once the emergency occurred, they could make payments on it.

I'm just saying, if money is tight, then you need a budget. Personally I think everyone needs one, but it can be extremely daunting to make a budget when the numbers don't fit.

Look, if the numbers don't fit, then make a priority list. "We only bring in "x" amount therefor we can only afford rent, utilities, food, and fuel.

Sorry kids, but we're not eating out this month."

When we first did a real written budget, we were sure the numbers wouldn't fit. We were lucky, they did fit, but things were tight.

I'm not saying everything will turn out okay if you do a budget. Honestly, your expenses might exceed your income! But if that is the case, then that is something that you truly need to be aware of.

So if you think the numbers aren't going to fit then you definitely need to have a leak proof budget. You can't afford not to!

No comments:

Post a Comment