I wish I could come up with a better word than "budget" for managing money. While I've made peace with the word, for me it still conjures up synonyms like "whip," "drudgery" and "cruel master." I prefer the more elegant term "spending plan," but because "budget" is so universally understood, let's just go with it for now — all preconceived notions aside.
While there are many ways to budget, none are failproof. A budget is a tool you develop to fit your lifestyle. There is no single, guaranteed or perfect budget method, form or spreadsheet. What's more, even a template or financial software that fits your temperament and lifestyle is not guaranteed to change your life — in the same way a power tool sitting on the garage shelf won't put together that new wall unit while you kick back and watch TV. You have to do the work.
Budgets are extraordinarily useful, not unlike training wheels on a bike. They can help you get going and give you confidence as you learn the delicate art of balance. There may come a time when you'll become an expert bicyclist and outgrow the need for training wheels. Or you may want to leave them on for confidence and security, should you hit a bump in the road.
NO ONE SIZE FITS ALL. There are probably as many budget methods, templates, forms and software out there as there are peoples' financial temperaments. And rarely do those fill-in-the-blank templates work. That's because all of the categories, percentages and preloaded numbers reflect someone else's income and lifestyle. That makes them doomed to fail in most situations.
The only way a budget will ever work for you is if the categories and the numbers within them reflect you.
BUDGET OF CHOICE. Of course, I am referring to my choice, but I'm confident this plan will work for anyone in any situation.
1. Create categories. Start with the easy ones like housing, food and gasoline, and expand from there.
2. Assign every dollar a job (so to speak). Look at your paycheck or source of income. You have to manage every single dollar. The way you do that is by giving every dollar a job, whether it be spent, saved or otherwise set aside. Think of yourself as the boss and those dollars as your employees. A good manager knows where the money is supposed to go and then follows through to make sure it went there. That's a budget.
3. You begin every month at zero dollars. Call it a zero-balance budget. Since every dollar has a job, at the end of the month every dollar should have done its job and moved out of the checking account. Theoretically, that brings your household bank account to zero dollars. And if, due to something unexpected, there is some money left in the account, determine where to move it so that the balance returns to zero.
A budget where you create your own categories, allocate every dollar of every paycheck and then follow where the money goes, is a budget that will push you to develop new habits and routines. These changes will become your new normal in no time.
Mary invites questions, comments and tips at [email protected], or c/o Everyday Cheapskate, 12340 Seal Beach Blvd., Suite B-416, Seal Beach, CA 90740. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of www.DebtProofLiving.com, a personal finance member website and the author of "Debt-Proof Living," released in 2014. To find out more about Mary and read her past columns, please visit the Creators Syndicate webpage at www.creators.com.