Editor's Note: A version of this article was previously published on Debt-Free Mormon Blog. It has been reprinted here with permission.
As a financial counselor, I've had the opportunity to discuss personal finances with a variety of different people. The budget is almost always one of the first things we address. I cannot emphasize enough the importance of having a monthly budget. It is the key to achieving all of your personal financial goals. It will change your personal financial world, if you do it right.
In my conversations with people I have noticed a few things:
1. Almost everyone believes they have a budget.
2. Almost everyone doesn't really have a budget.
3. They can do better.
We all can do better. Just like in all other aspects of life, there is always room for improvement.
Here are seven ways you can better master your budgeting skills.
1. Have a written budget
If it isn't written down, it doesn't exist. Having the budget “in your head” doesn't really count for having a budget. I don't care where you write it down – it can be on a piece of paper, a yellow pad or on an excel spreadsheet. Just make sure you write it down.
2. Track it
You have to have a method of tracking. What's the point of making a budget and establishing guidelines, if you have no way of knowing whether or not you are actually staying within those guidelines? Track your expenses.
A great way to track your expenses is with the Mint.com mobile app. It easily and securely links your bank accounts, categorizes your spending and uses little line graphs to help you track how much money you have spent in any specific category. It will also send you alerts when you are reaching your spending limits. However, a simple piece of paper, envelopes or an excel spreadsheet works just as well. Find which method works best for you and do it.
3. Budget the priorities first
Before doing anything else, cover the household necessities first. Food, shelter, transportation and utilities are the first things you should include in your budget. If you are a tithe payer, then tithing should be included in this list. Additionally, make it a priority to budget for savings – you should at least have a decent emergency fund if nothing else. And never pay on a credit card or debt before paying your rent, mortgage or utilities. That's just dumb.
4. Prioritize your debts
After you have covered the basic household expenses, you can begin allocating money to cover any debts you might owe. This includes credit cards, student loans, medical bills or any other debt obligation in which you are making monthly payments. Prioritize them. I recommend listing them in order of smallest balance to largest balance, paying the minimums on everything but the smallest debt, and paying off the smallest debt as fast as possible with any extra money you can squeeze from your budget.
If there is a debt that is past due or a looming judgment, put resolving those debts at the top of this list.
5. Give yourself some spending money
Too often we are turned off to the idea of budgeting because it feels restrictive. It is not restrictive. It is actually the opposite. It gives you more freedom and control of your money. But you need to be reasonable when making a budget. You are going to spend some money on personal stuff, so plan for it. Give yourself some “pocket change.”
6. Give every dollar a name
Make sure every dollar of your income is allocated toward something specific. Your income minus your expenses should equal zero. Every dollar should be accounted for. Using a budget sheet can be helpful when planning your spending. It can help remind you of a spending category you might have looked over. One of the biggest mistakes I see in budgeting is people leaving something out of the budget. Do you have a gym membership? Do you have a subscription to Netflix? What about haircuts and pedicures? It's easy to overlook some things in your budget. Make sure there is money allocated to cover whatever it is that you will be spending money on.
7. Cut things out
Depending on your income and debt situation, you might or might not have enough money to cover everything. If you are running on no surplus or very little surplus, you might have to cut out some of the waste. You might have to cut the cable or downgrade your service. Maybe you can only afford to go out to the movies one night this month rather than every weekend. Ladies, maybe you can't afford that weekly manicure. And guys, you might just have to pass on golfing a few times this month.
I don't know what you need to cut out of your budget, but if you don't have enough money to cover everything, then something needs to go. You can make that call. What I do know is that you cannot afford to continue to spend more than you make. That just doesn't work.
When you budget properly, you will be amazed at how much money you are actually wasting and how much more money you can actually save. There is room for all of us to improve when it comes to managing our money. The budget is where we can make it happen.
Mark Helgesen is a financial counselor at Utah Debt Solutions in Layton, Utah, and a runs a personal finance blog at debtfreemormon.org. Contact him at firstname.lastname@example.org.