By Abe Hudson, Jr.
I’ll never forget the first time I had to make a budget. I was in graduate school and I had just received my first monthly stipend as a graduate assistant. If my memory serves me correctly, that check was about $800 per month. At that time, it was a big pay cut for me. Since my second semester of freshman year as an undergrad, I had held a job and earned anywhere from $1,500 to $2,500 per month working in jewelry sales and receiving commission.
Because my graduate studies at Mississippi State University were going to be more intense, I had committed not to work while pursuing my Master’s of Finance and Master’s of Business Administration. I did not think that I would be able to live off less than half of what I had been making!!! After the first month of surviving, I actually realized something. “You can do more with less if you manage your money.”
WHAT is a budget? Investopedia.com defines a budget as an estimation of the revenue and expenses over a specified future period of time. A budget can be made for a person, family, group of people, business, government, country, or just about anything else that makes and spends money.
WHY does it seem like I don’t have enough money to pay my bills, you might ask? Well, it could be that you have the money, but you don’t know the first cardinal rule to making a budget actually work for you: “Understand Cashflow Management.” Cashflow is simply understanding when money comes in and when money goes out of an account. The most important word in the last sentence is the word “when”.
WHEN do you receive INCOME and WHEN do you pay EXPENSES? A budget is great, but if you don’t have the knowledge of how to spread your bills out in a way that is manageable for you, then it can mean trouble for you, your family, or your business. Whether it is for your household or business, one must use the same principles to guide financial actions.
Start with the basics:
• Look at when and how often you are paid.
• Make a list of all monthly expenses and when they are due.
• Calculate how much you need to pay all of your regular expenses and determine how much will be left over for incidentals, savings, emergencies, etc.
• Add quarterly and yearly bills into your overall expenses column. Don’t forget these because they are the type of extraordinary items (taxes, college tuition, etc.) that will throw a budget way off!!!
• Find out which payment due dates can be changed to a different time of month if there are times that your expenses exceed your ability to pay and other times when you have less money going out.
• Take a serious look at what part of your budget is made up of needs (necessary expenses) and what part is wants (luxuries not crucial to your health and wellbeing). If your budget is tight, trim the extras.
• Save the extra dollars and make an informed decision to do something to reward yourself, like a take a vacation or buy new clothes or furniture with a part of your savings.
As I conclude, I believe the lack of planning family finances is one of the leading causes for stress. For married couples, it can be a source of dissension that can lead to divorce. If you are married, I suggest that you and your spouse have weekly finance meetings to discuss your budget – which bills must be paid immediately, and whether some extraordinary expense has surfaced. The conversation may be uncomfortable at first, but it will create awareness about what’s in your bank account and improve communication with your spouse about the financial health of your budget.
Abe Hudson, Jr. is The DEBTS Program Director at Delta State University’s College of Business. The DEBTS Program is a project federally funded by the United States Department of Agriculture Rural Development. He, along with his staff, assists entrepreneurs to become more financially literate. If you have financial questions you want to ask, please email him at firstname.lastname@example.org.