I want to share my experience on creating a budget. We didn’t have one. Not having one caused us much distress. Having a budget gave us control and a voice on how we wanted to live.
It all started when I realized that our family was in a negative cash flow situation. This problem had been building for years. A month ago we were spending more than we were earning. This was with both my wife and I working. I told my wife this was unsustainable and something had to change. We were racking up debt and not providing the life we wanted for our children and for ourselves.
Where to begin? I had used online services like Mint before and recently Personal Capital. They were always lacking something. Some expenses occurred every paycheck, others once a month, others weekly, and we had others that were once a quarter and once a year. It was hard to keep track.
I used the Numbers app from Apple to start. You can use anything, Excel, paper, Personal Capital, it doesn’t matter. The key is to write down all your expenses. All expenses include federal taxes, state taxes, 401k deductions, benefits, even Netflix. That’s what I did. If I couldn’t get an exact amount I wrote an estimate and kept going. I compared the total annual expenses with our annual income. What I found out was shocking.
We were indeed spending more than we earned. And this was excluding Medical bills and Auto Maintnenance. I staggered. The realization sent me into mini panic attacks over the next few days before I slept. I highlighted expenses as two colors, red for expenses we could change immediately, yellow for expenses that would take some time to change. I focused on the red changes. I informed my wife the changes we would need to make. And ultimately she bought in. It’s incredibly important to have your spouse’s support. I had tried half-efforts previously, but they always failed since we both weren’t committed to the change.
To sum up: have a budget. To create your budget write down everything you spend in a year. This includes pre-tax deductions. Choose a color for expenses that can be changed quickly. I chose red as in urgent. Choose another color for expenses that can be reduced given some time. Here I chose yellow to symbolize caution. Most important, sit down with your significant other and review. Next post I’ll go over some steps we took to get our financial situation back on track.
Vijay
Smiling Dad
Credit to the photo comes from gomotocoach.org
smilingdad 