How do I set a budget or a spending plan?
Hello, my name is Ron Blue. One of the most common questions that I get off of our website, and common questions that I get when I speak or am on the radio, “is how do I set a budget, what do I have to do to control my spending?”
I would like to say: first of all, I probably wouldn’t call it a budget. I would call it a series of pre-made decisions. Or better yet, a spending plan. A plan denotes where I would like to go. It doesn’t necessarily mean that it is the law; it is a plan. So, a budget would be better characterized as, “I have decided ahead of time where I believe I should spend my money, and I want to try to stay within those guidelines.” I think there are really two important words to remember. Number one is time and number two is flexibility.
First of all relative to time, you can’t just set a budget overnight. I counsel people that it may take you as long as one or two years to really have a spending plan that you’re comfortable with. For example, if you haven’t had a spending plan, then you don’t know where you have been spending money.
(Second) So where you start is, “where am I now spending money?” And then you ask the question, “Is that where I want to spend it?”
And then third, (ask yourself) “How do I want to control my expenses?” So, it takes a long time to establish a spending plan.
Secondly, I would say flexibility is a word that you need to remember. In other words, it is a plan. It is not the rule; it is not the law. It is something that is a guideline, and it will change over time because of changing circumstances. But if you’re on a track, if you’re on a plan, when the circumstances change, you can make adjustments very, very quickly. It’s just like a detour on a trip.
So my encouragement is: set a spending plan, but give yourself time, and certainly be flexible.
And, thirdly, husband and wife should do this together, because it’s your plan - it’s not his and it’s not hers.
Click here for the September 11, 2009 Blog Entry