Dear Liz: I’m beginning to realize that I have no idea how to budget. I make plenty of money but always seem to come up short. I’m trying to find the best person to help me make a budget. Do I talk to a CPA or a financial counselor? If so, how do I find the right person?
Answer: Budgeting has three basic steps: figuring out where your money is going now, deciding where you want it to go in the future, and monitoring your spending to make sure you stay on track with those goals.
Just because something is simple doesn’t mean it’s easy, however. People often fail to account for predictable but irregular expenses, such as car repairs. Once those crop up, the budget is thrown into disarray and people often give up on the spending plan.
Budgeting also can be difficult if you’re overspending on your overhead. If too much of your income is going for basic expenses, you may not have enough left over to live a comfortable life, pay off debt and save for the future, regardless of how many other expenses you trim. People who spend too much on shelter (mortgage or rent) and transportation (car payments and attendant costs) in particular often find they can’t create a balanced budget. Your “must haves” — shelter, transportation, food, utilities, insurance and minimum loan payments — ideally should be 50% or less of your after-tax income to create a workable budget.
Some people find that online solutions, such as the Mint.com financial tracking site, are enough to get them started with a budget. Other people need hands-on help. If your tax pro or financial advisor has experience helping people create and monitor budgets, that’s certainly one place to turn. Otherwise, check to see whether your local community college offers basic money management courses. Another option is a nonprofit agency affiliated with the National Foundation for Credit Counseling at http://www.nfcc.org. Many of these agencies offer classes or hands-on help creating budgets.
Some folks need to study out their relationship to money. We all have attitudes and behaviors established towards and about money. Some we develop, some are given to us when we were kids, others are unavoidable. Making plenty of money, though, and always coming up short seems to point to this need to understand behavioral finance better. I often go so far as to say that some talk therapy to uncover some of these issues is a good idea, especially if the impact of spending too much and not being able to save towards goals (education, retirement, emergencies, etc) is an uncomfortable issue.