Making Cents: Making a budget
Mathew Carrick / Columnist
When talking about personal finance, I usually advise people to consider the long-term and think about needs in the distant future. However, it can be hard to do so without the short-term foundation that makes planning possible. This is why setting up a consistent, easily-manageable monthly plan can help lead to financial security.
Perhaps the best reason to have a budget is the sense of calm and safety that can come from it. With a well-designed and adhered-to budget, guesswork is eliminated. You always know how much money you have and how much you will have. There’s no risk of running short on rent or groceries because you spent too much on something else and there’s a peace of mind that’s hard to find elsewhere.
Some people are hesitant to budget because they feel it isn’t fun or it will limit spontaneity. I would say this isn’t true at all, but that you need to have “planned spontaneity.” I have a planned “miscellaneous” category in my budget that allows me to spend a certain amount of money each month on whatever I want. If you know you won’t be able to resist spending money on movies, video games, clothes or lattes, that’s fine—just build it into your system and make sure you can afford it.
So next month, sit down with a pen and paper or a spreadsheet and set up a budget. Think about how much you’ll earn this month and what your essential expenses are. Start with rent, groceries and utilities. Set aside a little bit, even if it’s a very little bit, for savings. The rest of your money can get divided up into other, more fun categories like entertainment, date nights or books. Set reasonable targets for each category and keep those figures in mind throughout the month. Start tracking your expenses by writing them down under each category and figure out how much you have left to spend.
You probably won’t get it quite right the first month, especially if you don’t track your expenses. You might underestimate how much you spend on certain items and need to make adjustments. I’m not a budget purist: as long as you can cover your essentials and don’t go over-budget, it’s okay to spend more than planned on some items and make up the difference elsewhere (e.g., I’ll go over-budget if I see this movie, but I’ll eat out less).
Next you can try some more advanced planning by breaking up future purchases into manageable chunks. For instance, if you know you’re going to need a new computer, budget a little bit of money into your laptop fund each month. After a few months, you’ll have a nice fund set aside!
Maintaining a budget is much easier and safer than having nebulous goals about “needing to save.” Structure and specificity help make goals easier to strive for since it’s so much easier to measure progress. Budgeting can be hard at first, but after a couple of trial runs it will be easier and maybe even fun. Most importantly, a proper budget will give you peace of mind and stability, as well as build a foundation for stronger, more long-term planning. A sound budget leads to a sound future!
Mathew Carrick is an Economics major, Math minor, and personal finance enthusiast. If you have questions regarding personal finance or financial literacy, feel free to email him for an answer – it may even turn into a column!