I just got a message from a friend of mine that made me think. I asked a seemingly innocuous question on facebook.
And I got back a seemingly innocuous answer
Well that sounds like a great idea. Only there’s a reason I have to pick one. The simple fact is I’m out of money for this month. My girlfriend and I are on a budget, and I only have $22 more dollars to spend on entertainment. So if the two of us take in a movie… that’s it. We’re done until Oct 1st.
Why am I writing about this? Well first of all this blog has been staring at me with puppy dog eyes for months now. It was hungry for content. Second of all, I’ve been thinking for a while that I wanted to write about how Aniyia and I manage money. It’s something I take very seriously and it’s something a lot of people have trouble with. So I’m hoping someone gets something out of it.
Anyway back to the budget. On the surface, everyone knows what a budget is. Basically you say “here’s how much I have to spend. After this, I have to stop.” But when you try to live on a budget on a daily basis, you realize the rules are pretty vague. For instance, does that mean I’m gonna be broke if I spend this $22? Nah, this is only part of my budget. I won’t be hurting if I spend an extra $10. Does it mean something bad will happen if I go over my budget? Not really. I’m not going to overdraft my account or miss any bill payments. So you’re thinking, what’s the big deal? It’s not that I can’t go see both movies, I’m just depriving myself.
And you are exactly right.
The only problem with that thought is that going over my budget is a really big deal to me. I choose to deprive myself of things so that I can be financially stable. If that doesn’t seem like a very revolutionary concept then you should read it again. Then you should ask yourself, are you financially stable? If the answer is no, then you should read it again.
I have read a lot of books and blogs about how to get out of debt. They all have different tips, tricks and techniques that they want you to try. And some of them are good. But the real secret, and the one they all agree on is this:
The only way to save money or pay off debt is to spend less money than you make.
It’s really a simple concept. If you have make $10 you can only spend $9. If you make $30,000 you can only spend $29,000. It’s up to you how much you save. But unless you can make it to the end of the month and still have some money left, then you fail. Plain and simple.
But this is an extremely difficult thing to actually accomplish for most people. Because there’s always something to spend more money on. There are so many awesome things you can have if you just spend more money. A couch for your new apartment or a trip to Vegas or the super HD cable package. Not to mention all of the bills that you absolutely have to pay. It doesn’t matter how much money you make in a month, you can find a way to spend it all on if you want to. Just ask MC Hammer.
But I realized something important a while back. The money I make is not mine. I’m just borrowing it. It really belongs to all the creditors I owe. Credit cards, car note, student loans, other miscellaneous crap. At one point, when I added it all up, I owed them a grand total of half of the money I make in a year! (and I get paid pretty well) When I realized that it made me sick. I felt crushed under the weight and felt like I was in a cage. I had to get out. So I had to take steps.
I decided to start spending less so that I could dig myself out of the massive hole I dug for myself. And over the last few years I’ve paid off around $20,000 in debt. Since Aniyia and I have started working together we have completely paid off her credit card debt. Which was killing her at the beginning of last year. That may seem impressive, but we’re not done yet. I still have credit cards and a car note. So every day, I make sacrifices so that I can keep money in my pocket. And it goes towards my goal of being completely debt free.
So let me outline how our personal budget works. These are the basic principles that help us make decisions:
- Our budget includes every last dollar we make. You have to think of everything, and nothing is too small to be counted.
- We break down our expenses so we can see and understand what we spend. Once you really see how much you spend every month, it’ll probably make you sick too. But this is an important step.
- We track every dollar that comes in and goes out. You should never end up with that feeling that you don’t have any money and you don’t know where it went to.
- If we spend money on something. It has to be accounted for in the budget. Your car broke down? You have to go to a friend’s wedding? Those are unexpected right? Not really. These things happen all the time. You should expect them. What you really mean is that they are unplanned for. You can account for these things in your budget. More on that later.
- Every extra dollar goes towards our goal. For us it’s paying off debt. For you, this could be saving for a house or a car. It depends on what’s important to you. The point is you have to have a goal. If you can’t say exactly why you’re saving that dollar, you won’t.
I’ll try to talk about each of these things individually in future posts. But can you see why going to an extra movie is a no go? Every dollar has to be accounted for. I don’t have a magic pair of pants that always has an extra 10 dollar bill in it. That $10 is already promised to go somewhere else. So if I do spend it, what else doesn’t get paid? Any extra money is coming out of another part of the budget. If I choose to see an extra movie, I also have to decide what else to give up.
Is it coming out of the food budget? I could skip one meal eating out, but we’re pretty tight on the food budget this month too. Is it gonna come out of the water bill money? Some people might choose that, but I kind of like taking showers. The only other place it can come from is the money we’ve set aside to pay off my debt. And that is unacceptable.
To me, a budget means knowing what you’re giving up if you spend too much money. Every time I spend more than I planned, I’m making a choice to stay in debt an extra day. Thanks but no thanks. I’ll just catch Surrogates on Netflix in a few months. That’s already included in the budget.
I promise future posts will have more substance than this one. I want to talk about how to actually setup a budget and how to live with it. So stay tuned.