Marc Cuniberti: Making a budget
Daily budgets are rarely made by families but doing so can be highly educational as it highlights what one spends and where the money is going.
I don’t know of anyone who can’t benefit from a detailed budget written down on paper and then reviewed by all members of the family.
Actually sitting down and doing it seems a daunting task but biting the bullet and doing one will likely pay healthy and needed dividends.
I can almost guarantee taking the time to perform this task will be akin to finding money in your mailbox. How much you find will depend on how much you spend each month and how accurately and honest your budget is.
Yes, honesty is a weird word to use here but if you think about it for a bit, you can conjure up a few instances why one might not be 100 percent honest on a budget.
The reasons for dishonesty might run the gamut from a harmless hobby you don’t want to give up on to a more ominous reason such as feeding an addiction that consumes funds.
Whatever the details, making a budget will always yield something worthwhile and so it’s a great exercise to do. If you or your family is struggling to make ends meet, this is all the more reason you should consider doing it.
When making out your budget, its best to have your checkbook and credit card statements handy as these could highlight something your memory might fail you at.
The point here is you want to list everything you spend money on, both reoccurring and the one-off expenditures. Those one-off expenditures are obviously scrutinized in hindsight since they may not reoccur.
They may however illustrate whether a good decision or bad one had been made for the expenditure.
Outlining your budget
Start by listing every dollar that went out whether reoccurring or not. Do this for several months in a row if you have the fortitude to do so, otherwise a one month review is better than nothing.
After listing all your expenses, list your incomes for the family or yourself if doing this on your own. You will end up with a conclusion, of which you already may realize, of whether you’re operating in the red (spending more than you take in) or in the black which means you make more than you spend.
No matter what side of the spending aisle you fall on, the goal here is to be able to actually see and compare where your money is going.
Next determine what spending is discretionary and which is mandatory. A mandatory spending destination might be a mortgage payment (paying the minimum required) while a discretionary one might be a movie or date night.
I like to list the items in order of summation meaning the largest expenditures in order to the smallest. Then list the semi-discretionary items such as cable TV, an optional data plan on your phone or fancy steaks in lieu of hamburger when you grocery shop.
First, take your monthly income and subtract the mandatory items. The remaining amount will be what is left over for discretionary and semi-discretionary spending.
The first items to then review for cutting is the purely discretionary spending. This is where will you find the easiest “mailbox” money.
Learn from what you spend money on
Do you spend a lot going out to eat, buying three pairs of shoes or going to five movies a month with candy and popcorn?
It’s not rocket science to think of ways to cut. Buy your candy out (the theaters won’t like it but hey), forego the sodas (your body will thank you) and try renting a movie at home once in a while. DVD’s are free at the library don’t ya know.
In any case, discretionary spending is usually higher than people think and once illustrated in an “in your face” spreadsheet, the “red face” of embarrassment over where your money is really going usually appears.
Don’t be embarrassed. We all get a little “frowny faced” when we see just what and where we are possibly wasting our money on.
One can also usually find money in the semi-discretionary column as well.
Larger than necessary phone plans or excess luxuries like dry cleaning or cell phones for the 7-year-old can also steal funds needed elsewhere for more basic needs.
Once in a while a mandatory large item is found to be the main culprit and a major change must be made. This might be too large of a house or car, too long of a commute or other item that may seem mandatory.
But considering a onetime major overhaul in this area could significantly improve one’s financial condition and find the largest amount of money. This might include moving to a smaller house or closer to work or getting rid of the extra car.
The point is to make a budget first and worry about what’s on it once it’s made.
Making a few small changes in your spending habits can make big differences over a long period of time.
Look for pennies and the dollars will find you.
This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. He is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at 530-559-1214 or at SMC Wealth Management, 164 Maple St #1, Auburn. SMC and Cambridge are not affiliated. His website is http://www.moneymanagementradio.com.
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