Don't you just love the feeling which comes with the countdown to midnight at the end of a year? It is as if all the mistakes and trials of the previous year are behind you and ahead is only a new, freshly-scrubbed slate. Each new year is such tremendous opportunity that we generally find ourselves setting new goals and making New Year's resolutions. Unfortunately for most of us, the resolutions made on the first day of January have generally faded with the February sun. This year can be different. If last year you found yourself living paycheck to paycheck, it's time to take control of your finances. It's easier than you think. Here's how.
Step 1: Organize. If you haven't already set up a file system for your finances, start now. Find an empty paper box, clean out a file cabinet drawer, or purchase an expandable folder. Next, fill whatever storage container you have selected with clearly marked file folders or large manilla envelopes. You'll need at least twelve folders—one for each month of the year and perhaps a few additional folders for other financial papers such as medical and insurance statements, investments, warranties, taxes, and other important documents. As you pick up your mail each day, drop each bill into the monthly file folder which corresponds with their due date. No longer will you lose or misplace any bill and if you get in the habit of checking the folder weekly, you won't be late with a payment either. In this electronic age, some of you have switched to paperless billing. If this is your situation, you can do the same thing with electronic folders which you can set up inside your e-mail system.
Step 2: Call a Family Planning Meeting. Set aside a night, perhaps your next Family Home Evening, and ask everyone to come prepared to discuss their needs and their wants for the upcoming year. Listen and record each family member's requests. Really listen. Don't dismiss any request, even if it sounds outrageous. You can deal with even outrageous requests as you work through the process together.
Bring to this meeting any record of last year's expenses. It may be an electronic checking account history or a paper check register, or a stack of old bills. Checking accounts show deposits and withdrawals and you need to examine both. Be open and honest as you look at your family's complete financial picture together. Try to anticipate the unexpected. Think and discuss anything which might become an emergency during the upcoming year, such as the repair or replacement of a car, furniture, or appliance. Take the opportunity to talk about a family vacation, summer camps, athletic programs, and music or dance lessons. Take your family requests, your checking account history, and your list of potential expenses and try to prioritize each item in terms of needs and wants. Tell your family that you will try to meet both their needs and wants. However, when money becomes tight, as it will some months, you will, of necessity, have to meet needs first and wants will have to wait. Assure them that you will try to fulfill their wants when things improve. Now you are ready to create a spending plan.
Step 3: Set a Yearly Strategy. You'll need a graph-like chart or a computer financial program to work with. If you have our book, Debt-free On Any Income, you will find an electronic Yearly Strategy worksheet on our CD. Other electronic programs will do the same as the one in the book, so use whatever suits you best. The advantage to a computer program is that it will automatically calculate your totals.
Now create your budget categories. We've used an alphabetical system which works well for us: Auto, Charity, Debt or Credit Cards, Education, Food, Gifts, Home, Insurance, Leisure, Medical. Miscellaneous, Personals, Savings, Taxes, Utilities, Vacation, and Wardrobe.
Begin to populate the cells on your yearly strategy sheet. First input your monthly income (as well as you can if you are self-employed). As you input your income, remember that some months you will have additional income such as a company bonus, an income tax refund, or a cash gift. Be sure to record these amounts, if you know them, as part of your monthly income.
Now you are ready for expenses. From your family's list and last year's record, populate these cells. Don't be too concerned if some month's expenses exceed your income. You have already noted that you have months with extra income. You will use the extra income to meet the extra expenses. As you record your budget expenses do not forget “Back to School” clothing and fees, Christmas, vacations, trips to out-of-town to visit grandparents, income taxes (if you do not have it withdrawn from your paycheck), property tax, car registrations, insurance premiums, etc. Try to anticipate and record every expense.
Next, populate cells for savings. Savings accounts provide a safe place for your additional income to rest in anticipation of those months of peak expenses. Also plan to take some amount, however small, from your regular pay to place in savings. You will need both short-term and long term savings. Short term savings are for emergencies and repairs, Christmas, and vacations. Long-term savings are for the purchase of a new car, your children's education, missions, and retirement. The amounts you save don't have to be large, especially at first, just try to save something each month. Savings are the key to meeting expenses and not going into further debt. Contrary to popular belief, you can still save even while pulling yourself out of debt—it just takes more discipline.
Of course, don't forget your tithing and faithful obligations to the Lord. This will bless your lives in ways you cannot calculate. But write it into your budget just the same.
The hardest part of this process will be in making your budget balance. As we warned you, not every month will balances, but every year must balance. Making your year balance, even on paper, is a ticklish process. Be flexible and work through it. We assure you it will all be worth it in the long run.
Step 4: Monthly Budget Meetings. At the beginning of each month, take out the yearly plan to establish a monthly budget. Include your children again each month. Let them tell you about any upcoming needs. Adjust and modify again and don't be afraid to make cuts when it becomes necessary. Experts tell us that the average family wastes between 16% and 24% of their monthly income. Try to find that wasted money.
To ease the rigidity of a budget, allow yourself some mad money. Everyone needs to feel he or she has some money which does not need to be accounted for. A few dollars without strings attached makes the family budget feel less restrictive.
The more open you keep the budget, the more likely it will be that your family will work with you.
Step 5: Track Weekly Expenses. It only takes a half an hour, more or less each week, to record your expenses and subtract them from your projected budget. Writing things down helps you keep spending under control. Soon, you'll find you are spending less without even feeling a pinch or a change to your lifestyle. Gone will be worry and the guilt associated with spending money. You will feel the confidence of knowing there is money there when you need it.
Just one word of caution--if you've never budgeted before, you need to allow yourself and your family time to adjust. In addition, don't panic when unexpected expenses come along. Make cuts somewhere else. Use your savings by either withdrawing or not contributing. Above all else, don't get discouraged. The first month may seem like a disaster, but that is normal. The second month will be better, and by the third month you'll actually begin to relax and enjoy the freedom which comes from having a spending plan. Within the year, you'll feel the security which comes from knowing you are prepared.
It's time to seize your grand opportunity. Control your finances and stop letting them control you. Happy New Year!
