Let’s face it: budgets get a bad rap, much of the time. For many of us, the thought of budgeting summons visions of tracking every expense, constantly monitoring spending, and feeling guilty when the numbers don’t match the plan. Maybe that’s why only about 32% of American households follow a monthly budget plan.
But the more encouraging news is that, once you’ve developed the budgeting habit, you’re more likely to effectively monitor your monthly income and outgo. For those who budget, 70% tend to check their status weekly.
The fact is that building a sound financial plan depends on having control over your day-in, day-out expenses. It’s hard to plan effectively for the long term if you find yourself constantly having to rob Peter to pay Paul, regularly working overtime or extra shifts simply to cover regular expenses or, worst of all, using credit cards to cover recurring shortfalls. Sure, everyone has emergencies from time to time, but even then, an effective budget should include some provision for the unexpected.
So, how can you get started toward developing the financial discipline to create and stick to a budget? It all starts with knowledge.
1. Know your income. When we say “income,” we aren’t including overtime or extra shifts. Too many first responders fall into the habit of using what should be extra income for special purposes to cover regular living expenses. Money from overtime or outside work should ideally be earmarked for “above and beyond” categories like paying off a mortgage early, getting rid of excess debt, or other activities that will build your net worth. Make every effort to live within the means provided by your regular income.
2. Plot your expenses. Obviously, you’ll start with the big stuff: mortgage or rent, vehicle payments and other transportation costs, food, childcare, and so forth. But now you need to take the next step and actually track what you’re spending on categories like entertainment (probably includes dining out), recreation, clothing, and all the rest. And here’s one of the paradoxes of budgeting: most see budgeting as stressful because of having to “track everything down.” But once you’ve accurately tabulated where all your money is going, you’ll probably have less stress, because you’ll feel more in control.
3. Figure out where you can cut back. This is where you reap the benefit of the work you did in step 2. Chances are, once you’ve carefully itemized your total spending, you’ll be able to identify areas where you can trim. The object is to get your monthly expenses at—or, even better—below your regular monthly income.
4. Start paying yourself first. The number-one requirement for building wealth is disciplined savings. Your goal should be to put 10% of your regular income into savings before paying any bills or making other purchases. Over time, as you build your savings and investment fund, you’ll begin to see the magic of compounding working in your favor, instead of creating income for the credit card companies.
Remember: budgeting doesn’t have to be a “B” word. Instead, it can be your most useful tool for building a strong financial future. At Mathis Public Safety Retirement, we understand the challenges and opportunities faced by public safety professionals of all types. To learn more, read our article, “Five Years from Retirement: What Firefighter Couples Need to Know.”