By Mike Aux-Tinee.
When I wrote Islands of Happiness, I spoke about cutting expenses, then taking the money and using it to pay off your debt. In a round about way, this was a back door approach to creating a budget.
I am rather shocked that anyone would risk financial ruin by not living within their means and establishing a budget. I wish the President and members of the United States Congress would come to grips with this notion. Oh! Before I forget, I would like to formally offer my services to help create a budget. I am sure, the President of the United States has a way to contact me…(I secretly doubt I will get a call though).
To help this process along, there are a few things that I want to state right from the beginning. There is nothing wrong with creating and living with a budget. It will take some serious strength and a commitment by you to do this. And there is a huge difference between what needs, wants and luxuries are and these differences are creating a debt problem that is spiraling out of control.
In my post, Why Debt is the Perfect Storm I gave some very sobering information about the debt problem in America so I will not get into it here. Before you read any further, head over there and read that post.
About the inner strength and commitment part. You will need to make some difficult decisions and understand that the way you are living right now is unsustainable. I know you can do it, I went through it and I am much better off today than I have ever been. I do not regret changing my life and living within my budget.
The first thing I want to talk about is the differences between what a need, want and a luxury really is. What we need to get by is food, shelter and clothing. Along with those we also need to have utilities, insurance and for some a car.
Now as far as the wants go, we all want to have the ‘better versions’ of those above items. For example, we want to eat steak and potatoes for dinner, when in reality, we can really live with eating something not as expensive.
As for luxuries, these are things that are at the extreme end of the pricing scale. We may need a car, something to get us from point A to point B. A standard four door sedan would work. But, we would love to have a high-end luxury car.
Time for some serious inner strength. Now that you have a better idea of what a need, want and luxury is, it’s time to go through your expenses, classify them into one of these three categories and then cut them out of existence. It is even possible to cut back on some of the needs too!
This is about establishing priorities and looking at the opportunity cost – basically, what else you could be doing with the money!
You may have some questions about what to do with the money that has come up because you created a budget.
- pay off debt
- save for a rainy day
- plan a vacation
One thing I think a lot of people have a hard time with is accepting the idea that living by a budget is only for the short-term. Once the amount needed is accumulated then the old way of living can resume. But the thing is, cutting expenses and living with a budget is a long-term game plan. Of course, there are going to be some very minor deviations, like taking a trip that could bruise the budget. But that’s alright.
Coming up with a budget is about creating balance and protecting yourself from unforeseen economic problems like losing your job. It’s also about becoming more self-reliant and learning to accept that there are financial limitations – the credit card is really not your best friend. You will be very tempted to toss the budget away and resume living your old life. But before you do this, think about the hard work and sacrifices you have made to create your budget. Not only that, but look at what you did with the money: how much debt you have paid off, how much more money you have and the peace of mind of being in a better financial position. Looking at it in those terms, living with the budget is actually a win! And we all want to be ‘winners’ in life!