Be In Charge of Your Finances
Do you ever come to the end of the money before you run out of month? It's easy to conclude that the problem is that you don't earn enough money (or that you spend too much). In fact, the real problem is almost always that your finances are out of control.
I don't want this post to turn into a comedy routine with a list of items like, "Your finances might be out of control if you ever use a credit card to pay off another credit card." Frankly, if your finances are out of control, you already know it (although you may be in denial). Still, here's a short check list:
- You don't have an emergency fund.
- You don't pay off your credit cards every month.
- You don't know how you'll satisfy your big, high-priority wants (like college for the kids).
- You worry about the bills (or about money in general).
Taking control of your finances is straightforward. I've written articles about most of the steps, but it occurred to me that I've never really put the whole thing together. So, for those of you who have problems that look like a lack of money (or excess spending), here's how take charge of your finances.
Take control by buying what you want
I've carefully buried a certain word in this sentence, because I'm afraid that the word budget will turn off a lot of readers, and I'd like to ease them past it. There are two reasons that people hesitate to make or follow a budget.
The first is that they come to budgets with a sense of guilt. That's crazy. If you'd rather spend money in some other way than what your budget says, don't feel guilty about it: Just change your budget. Your budget is not a constraint, it's a tool for helping you get what you most want.
With that in mind, here are four posts on budgeting:
If Budgeting Isn't Fun, You're Doing It Wrong is all about creating a budget that lets you buy what you want. It's about figuring out what you really want and making sure you're budgeting for those items. Like I said: If you want other stuff more than the stuff that's in your budget, change your budget.
Refactor Your Budget Categories is a short piece on how to organize the categories in your budget. If you have a budget that's working for you, you can skip it. But if you're creating a budget from scratch (or if you're not satisfied with the budget you've been using), it has some useful ideas.
A Better Way to Create a Budget advises against the usual budgeting advice of filling in each budget item with what you spent last month (or last year). Instead, I suggest, start each line item at zero, then figure out what you really need to spend to satisfy your wants and needs in that category.
Your Budget: Envelopes or a Plan? looks at the two main styles of budgeting. I used to follow the envelope model, where I set aside money from each paycheck to cover each expense category, but some years back I quit thinking of my budget as a set of envelopes and started thinking of it as a plan.
Take control by knowing what you're buying
The second common reason that people resist budgeting is that they feel like they're "not the sort of person" who needs to pays attention to every penny. That's not quite as crazy as feeling guilty when they don't follow a budget. It is possible to manage your finances intuitively, and lots of people do. But it's not a sign of moral superiority.
The way to get your finances under control is to create a budget and then track your spending so that you know whether you're following it or not. Neither step has nothing to do with what kind of person you are.
I wrote one post on tracking your spending:
Track Your Spending. Or not. It's on whether the time and effort of tracking is worth the payoff. (And, more important, what the payoff is.)
As I say, it is possible to manage your finances without a budget and without tracking to see if you're keeping to your budget. In fact, most people do just that. If your wants and needs are modest relative to your income, that can work fine. But the less daylight there is between what you earn and what you spend, the more you need to be in control of your finances.
Who's in charge of your finances? You? Or no one in particular?