Budgeting for Financial FreedomCredit: Michael Connors @ morgueFileCredit: Michael Connors @ morgueFile

You’ve tried.  You have sat through the budget procedure before, tallying up your receipts and bills.  But within days your meticulous budget falls to pieces.  And then you fade back into complacency.

Perhaps the years of renting or newly developed house envy have you angry with yourself for not saving.  It could be that credit card debt has you swallowed whole and it is easier to imagine undergoing major surgery than opening the bills.   Maybe one friend too many has lost his job and you wouldn’t make it for a week without yours, however much you day-dream about leaving it.  Whatever reason it is that has you crawling through websites promising that some program is going to get you on track, you need to start living on your budget. 

If you have been there before, you already know that setting up the budget is the easy part.  After opening all your bills and checking all your online accounts, you spend an evening or two going through it all; dutifully add it to your spreadsheet. Or perhaps even the program you just downloaded, giving you ten days to decide that you do have room for it in your budget.  You wake up the next morning and skip past the coffee you normally buy, because now you are “going to be good”. 

But when lunch time arrives, you realize you forgot your leftovers and grab the closest fast food.  Somehow, it is always justifiable.  After all, last night you were up working on your budget.  By the time you got to June two years from now and the figures were starting to look good, it was already the middle of the night.  So now, you need to dig into that stash that you promised you wouldn’t touch and the cycle begins again.

Don’t worry, you are not alone.  Getting to a budget you can live with isn’t easy.  If it isn’t a natural skill you have, you need to take the time to develop it.  There are no quick fixes for financial problems.  If you have tried before and failed, here are some tips and strategies that may help in getting you to a budget you can live with.


Budget Detox

Try this if…your problem is a continuous stream of clothing, media and consumables spending which disables your month-long budget.

How a budget detox works:

Cut yourself off from all spending for a short time period, such as a few days or a week.  During this period, the only spending allowed is debt repayment.  More than likely there is enough food in the fridge and enough Tupperware to take it to work in.  You will probably be surprised at how liberating it is to get through a day or two spending nothing.  Whatever you do, don’t break the goal you have set for yourself. 

How a budget detox helps:

This method should show how quickly these small purchases add up to total budget destruction and how possible it is to do without many of them.  When you sit down to budget, you should include spending days and non-spending days to keep yourself on track.

Luxury Basket

Try this if… your problem is that you continue to keep budget-stifling monthly contracts or you have always found ways to prove your entertainment spend.

How a luxury basket works:

List all the luxury items from your budget.  This includes satellite television with all the fixings, Friday night drinks after work, internet games that you casually pay for, gourmet food to cook with, new music you need to feed your soul with, expensive gym memberships, annual vacations, new name-brand clothes, DVD rentals, and anything else that isn’t essential for living.  Once you have listed everything, assign a value to each item on a scale of one to ten. This value should show the item’s importance to your life and lifestyle, not how much it is costing you. 

Once you have valued each area of spend, add up all the values and divide by half.  So if your list adds up to 50, then your permissable luxury spend is 25.  Decide which items stay in your luxury basket (and therefore budget) and which have to wait.  Then set financial goals to match point values.  For example, if I save $2500, I will be able to clear 5 points worth into my luxury basket.   The item must be budgeted for, but you will have hopefully managed to clear a certain level of debt to better accommodate your reclaimed luxury basket items.

How a luxury basket helps:

One of the hardest parts of developing a realistic debt relief budget is doing without all the comforts we have grown used to.  Having all the channels in the world will not ease the pain not going out with friends if that is what you really want to do.  Going without a few luxuries for a few months is easier than trying to cut everything that makes your life worth living.

Divide by 52

Try this if… you find that you have lost speed on budget reconciliation after a few days and you discover at the end of the month, you have blown it completely.

How dividing by 52 works:

Add up your projected income for the next year and divide each total by 52, regardless of the frequency of your paycheck.  This is how much you are able to spend weekly, whether it is on bills, monthly accounts or on eating at your favorite restaurant.  On a calendar, mark each payment due date.  Develop a weekly budget based on each week’s particular needs.  For large payments, such as mortgages or rent, the amount set aside may need to be shared between various weeks.  You may want to consider a separate bank account for these expenses so you can set that money aside each week in an account you don’t have card access to.

How diving by 52 helps:

Most budgets and budgeting software programs follow a monthly financial breakdown.  By looking at a smaller time period, not only are budget review and revision periods more frequent, but so are the milestones!

Not Waiting… To Save

Try this if… you have a major purchase or event in the next year that you need to save for, but you still have a lot of debt hanging over your head.

How not waiting works:

Add the budget line for savings and make it as big as you need to.  The general rule of thumb is to get out of debt first and then start aggressively saving.  However, part of financial wellness is not accruing new non-secured debt. 

Even if you aren’t saving for anything specific, but words like compound interest make you long for financial freedom, then you need to add savings to your budget.  Set yourself up with a small savings that covers you for income loss or emergencies, then return to aggressive debt repayment.

How not waiting helps:

Perhaps you are paying 20% interest on credit card debt and only earning 3% in your savings account, but if you know of large expenses coming up in the near future, ensuring you can cover those without adding addition debt to your burden is just as important as getting out of debt.  Realizing the value of  savings goals and halting new debt is part of a healthy financial lifestyle.  Saving is not something to feel guilty about.

Whatever method you use to get to a budget you can actually keep up, you are on a path to living without debt.  And if you fall off your budget horse again, brush yourself off and get right back up there.  Your future depends on it!