Budgets do a lot of good, but you probably heard that already. If budgets do so much good, then why do we avoid them?
Budgets are like exercise and eating right. We know diet and exercise is good for us. We know diet and exercise will help us be better people. We know the amazing benefits that happens when we follow a diet and exercise. Yet, we don't. It is easier, and more rewarding in the short term to gorge ourselves and sit and surf the interwebs.
Budgets suffer the same stigma like diet and exercise. We know the benefits, but the discipline and work involved to maintain a budget or dieting or exercise scares us to accept the short term pleasures in lieu of long term success.
How do we make a budget work? If you're single and you have a money spending issue, then get someone who you trust and is responsible. Make them your "sponsor" and submit yourself to their direction and oversight. Some churches offer budget counselors to help in this area.
Married couples need to be on the same boat. If one person controls the creation and maintaining of the budget, make sure to do weekly budget meetings with the other spouse. The reason is to make sure that everyone is clear on where the money goes during the week. This will prevent one person having all the control and keeping the other spouse in the dark.
The last thing you should do is get a budgeting program. If you read my other posts, you'll know I'm a fan of YNAB. The cost for YNAB is $60 dollars but you can get $6 dollars off by following this link. While $60 dollars may be a lot of money, just remember YNAB offers a 34 day free trial, and if you follow the rules in YNAB, the money you'll save will pay for the cost of the program.
The Pareto Principle or also known as the The 80/20 Rule is simple:
"Roughly 80% of the effects come from 20% of the causes"
A quick glance at the wiki article above sums up that the 80/20 rule is applied to different areas from economics to nature. I suggest we apply the same rule to personal finances. 20% of your income should generate 80% of your wealth.
How is this possible? Live off of 80% of your income and save the other 20%. That 20% should then be divided according to your family needs. Do you have an emergency fund? If you don't, you should take that 20% and build a 3 month one first. Have debt? After you have an emergency fund, take that 20% and pay off debt. Once you finish those steps then save 10% of that 20 for retirement (especially if your young). If your older save 15% for retirement out of that 20%.
The rest of that twenty should go into saving for items that you may want like a new car, furniture, vacations, college, and so on. This method will allow you to pay in cash for items, and gives you negotiation room when haggling. It will free you from using "90 days same as cash" or other financing scams that will put you in the hole.
The very act of paying off debt is equal to getting a raise. The money you spend every month on credit card minimum payments could go to savings. Once the debt is go, you can pay using cash for the things you want.
I suggest using YNAB to start you off on the road of financial management. Once you have a buffer, then move to Quicken to maximize the money you earn and keep.
