Ever been depressed? Ever let things slide for a while? Ever looked around at the towering piles of clothes and mail, and wondered if maybe, just maybe - you might feel a little better if you cleaned it?
Budgeting can be a lot like that.
It’s tough to decide where to begin, especially if it’s been a while since you’ve checked your account balance. But lean times fall upon us all. When it happens, it helps to get organized.
The first step in budgeting is determining income. And the less income you have, the more each dollar you do have, counts. So it follows that a budget is only as good as your personal accounting. Keep paystubs, get bank statements. Add it up, check yourself. It helps to use Excel, Google Sheets. Budgeting tools like Mint and Personal Capital have been popular for a long time now, but they aren’t necessarily where you need to start. I think there’s still something to be said about trying it with pen and paper, and forcing yourself to think about how each dollar comes and goes.
After income, expenses. The really difficult part. Thankfully - since budgeting is something everybody, no matter their financial status, has to do - there’s a well-established order of priority.
Housing is the most important (and by extension, expensive) line on your budget. You can’t do much without a roof and a bed. This includes rent, mortgage payments, insurance premiums, property taxes, etc. Or even, let’s say: “comparable alternatives.” Life took a turn and suddenly you need a place to stay? Your car payments may suddenly become more important than rent. And it’s worth mentioning that, in absence of a stable housing situation, a $30 gym membership could save your life. It’s a cheap place where you can spend a lot of time, take a shower, and lock up a few valuables. Regardless, shelter will likely account for at least 25 to 40% of most people’s monthly expenses.
Food is, theoretically, next on the hierarchy of needs. Though depending on the severity of your situation, certain utilities could come first. Shelter takes precedence, and housing costs, left unpaid for long enough, can put your whole situation in jeopardy.
Opinion: I think it’s worth mentioning at this point that restaurants, take-out, and convenience items all fall under entertainment, not food. It’s my belief that - unless one is fabulously wealthy - they should make an effort to purchase and cook a majority of their own food. Learning to cook; how to sustain oneself, how to properly prepare and share a meal, is an essential feature of the human experience. Anyone can; everyone should. And don’t even get me started on Fast Food… Forget budgeting. If you want to improve the overall quality of your life, the first step is ending your service to the Colonel, Clown, and King.
Next in the budget: the true essentials. Basic utilities like electric, heat, water, gas. Simple toiletries and houseware like toilet paper, soap, plates, a bed. I won’t go too far into this – as the essentials do vary from person to person. But the basic question you should ask, when making decisions about what costs to include here, is: “Do I need this item to remain a functioning member of society?”
A special subsection of this line in the budget is “Income Earning Expenses” – that is, money spent in the pursuit of more money. The eggs you break to make the omelet. Necessary transportation and associated costs, like auto insurance. Internet and phone, tools-of-trade. Professional attire, if necessary. Home office equipment, if you don’t have a formal workplace.
Even your healthcare plan falls under this section. Can’t work if you aren’t healthy, after all. Unless you’re under 26 and still on a parent or guardian’s plan, or unless your employer offers a plan, most of us are completely priced out of independent health care. There are publicly-subsidized, low-to-no-cost plans available, but you have to demonstrably fall below the poverty line in order to qualify. As in: your income is less than $20K, annually. But, since most of us are dependent on our employers to subsidize the cost, this step in budgeting is as simple as paying the maximum amount into the plan.
So…
Alive, fed, clothed, employed, and in generally good health?
Good.
In debt?
Not good - but likely.
This guide covers the bare necessities of budgeting, but it’s not the end of the story. Emergencies happen, and you need savings. Not to mention: most people in the United States are already saddled with enormous debt loads – in the form of medical bills, student loans, and the Big One: credit card debt. All of which eat away at savings faster than most can build them. It sounds counterintuitive, but it makes no sense to save money when interest on your Credit Card debt grows exponentially in the other direction.
If that’s you: your budget must account for these additional costs of living.