Many experts advise that you write down all your anticipated expenses and develop a budget to meet your needs. Budget — there comes that dirty word that most of us hate.
The word budget brings up visions of someone telling you what you can buy and when. Then when the plan is made, you are supposed to stick to it. Seems impossible, doesn’t it?
If you are like many of us, you may have trouble keeping a budget. Don’t be too hard on yourself. Let’s take a fresh look at the idea of budgeting and see if we can create something that you might be able to use.
Only one-third of us have a detailed monthly budget, according to a Gallup survey. The difficulty you have sticking to your budget may have nothing to do with your dedication and a lot to do with how and when the money and the bills come in.
Taxes are due in April, insurance in January and July and maybe car registrations arrive in September. The bills come in on an irregular basis. At the same time, if you are paid every other week, some months you have two paychecks and at least twice a year you have three in a month. It’s hard to plan given these changing numbers.
Researchers from the University of Southern California and Cornell report that setting up a monthly budget is not as accurate or as easy to follow as making a yearlong plan. It all has to do with the thinking process. When you plan monthly, you tend to underestimate expenses. When you plan for the year, you tend to overestimate those same expenses. That means that you have allowed more money than what you actually need, leaving money left behind at the end of the year.
For this reason, some experts advise that you develop a yearlong budget. This method will allow you to even out the peaks and valleys of incoming and outgoing funds. Occasional expenses, irregular income, and emergency spending all even out with long-range planning. It also may give you a little pad of money at the end of the year to save or to spend on a special item.
Speaking of saving, another piece of advice the experts give us is to put your money in different accounts. At the minimum, they recommend an account for savings and one for paying regular expenses. By dividing the money before it goes into the accounts, you are far more likely to save money. It goes back to the idea of paying yourself first.
The most common idea most of us subscribe to is to pay your bills and put whatever is left at the end of the month in savings. Most of us will spend everything in the checking account because it is budgeted to be spent. So if you remove the savings first, you are less likely to spend the money you intended to save.
If your paycheck is direct deposited, ask that it be split, part in savings, part in checking. You won’t miss what you’ve never seen. If you deposit it yourself, split it before depositing.
These two ideas might give you a fresh look on how to do a better job in becoming more financially fit.
Roxie Rodgers Dinstel is associate director of Cooperative Extension Service, a part of the University of Alaska Fairbanks, working in cooperation with the U.S. Department of Agriculture. Questions or column requests can be e-mailed to her at firstname.lastname@example.org or by calling 907-474-7201.