Budget: How to Avoid a Financial Crash

June 25, 2012 — Leave a comment

Budgets are one of the most important components of taking control of your money. Without a budget, you’re at risk of driving off a financial cliff… and I know because I’ve been there and done that!

When I started budgeting, I realized I was spending more than I made every month. You can read the full story of how I paid off $50,000 of consumer debt in two years, but I came to realize I was spending $3,078 per month while I was only making $3,000 per month. Not only did I have $50k in debt, but I was also going deeper into debt each month! Just call me congress!

At that point, I needed to clamp down and live off of a tight budget. Instead of spending money like the big timer I thought I was, I needed to realize exactly how much income I received each month and figure out where it was going. At this point, I started following the Dave Ramsey plan and using the cash budget.

I know it’s not always easy to get in the budget mindset. When most of us hear the term “budget”, we imagine a world of pain where we have to give up everything we love. No more going out to eat, no more traveling, and no more fun! Yes, when you budget you’ll now live in a world of Ramen noodles and reading rented library books.

That would be enough to make me not want to budget, but fortunately it’s not always true.

Budgets are usually painful when you’re first getting your money under control. It’s similar to exercising for the first time in a long time. Your muscles and joints are sore for days as your body punishes you for working out. However, next time it won’t be as bad and the workouts will eventually start to feel good. Budgets are the same way (ok, you may never love them, but…).

The very first budget will be the hardest, but it will get easier from there. Once you finally get a budget and purposefully spend your money each month, you’ll feel like you got a raise. You’ll be able to use the extra money to save or knock out your debt.

We still live off of a budget today, but it isn’t nearly as strict as it used to be. We have set amounts for major areas (grocery, entertainment, clothes), but if we happen to go over budget one month, we won’t stop spending money in that area like we used to.

Now, the budget acts more like “guardrails” to keep us aligned to our future goals and keep us safely away from the cliff. We may bump into the guardrails every once in a while, but as long as we don’t crash through one, we’ll be just fine. In fact, we don’t consider it a budget anymore – it’s more like a Spending Plan.

One other thing, if you combine your finances, make sure you both get on the same page with your financial goals while you’re going through this. It will be nearly impossible to get on a budget and stick to it if you don’t.

If you’re ready to create your budget/spending plan, check out “How to take control of your money” and download the free budget templates. Good luck!

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