Episode 6: Planning Ahead With a Budget
In our culture today, it’s so easy to overspend on unnecessary items. Sometimes, we’re buying things we want because of an advertisement, or maybe seeing it on social media. But do we have the extra money for just a “want?” Without a budget, you could be left at the end of the month with a couple bills that you’re scrambling to pay.
The definition of the word budget is: an estimate of income and expenditure for a set period of time.*
So an estimate of income, that’s the easy part to figure out, right? If you’re a salaried employee, you usually make the same amount of money every paycheck because your pay is a set amount for that work week, or pay period. If you’re an hourly employee, you’re paid your wage for the exact amount of hours you work every week, which is determined by clocking in and out.
But let’s move to the second part of that definition, “an expenditure for a set period of time.” A set period of time is kind of self-explanatory. Lots of people budget for the month, or some budget by each of their paychecks. That’s your set period of time. But an expenditure? It’s just a fancy word for saying expenses, or spending money. So it means your money intended for each paycheck.
Now that we know the definition of a budget, you might ask “Do I really need one? I just pay all my bills as they come to me.” That might work for some people, but for the majority of us that’s just too much chaos. What if you have a slower week at work and there is fewer hours on your pay stub, making your paycheck $50 less than what you were expecting? If you don’t know where your money is going each day, than how will you know if you can cover that $50 difference on the car insurance bill, or any other that’s due at the end of the week?
In addition to just paying your bills, or your necessary expenses, what about groceries, summer clothes for the kids, or getting your gutter repaired? We organize our bills every paycheck to make sure everyone gets paid on time. We plan our meals and determine how much our grocery bill is going to cost. We know our gas expenses because of our routines and where we’re driving every week. We used our emergency fund to repair that gutter and now we’re budgeting that savings back in. But what if you’re trying to get ahead? What if you’re interested in being aggressive towards reducing debt and expenses?
An example is how lots of people come into the credit union to pay on their VISA credit card or a loan, like their home equity or personal loan. The member asks:
“How much do I owe on my loan?”
And there’s really two answers to that: the monthly payment that’s due now, or the total amount due on the entire loan. And the reply could be,
“Well, how quickly do you want to pay it off?”
Yes here’s the minimum payment due now, but maybe there’s room in your budget to pay extra on the principle balance. That extra amount is going to pay off that loan faster, you’re going to gain momentum on your payments and soon you can budget that amount towards another debt, or maybe even something fun like a vacation. It’s really that simple! Planning ahead, or using a budget tells you what to do with your money so you’re not wondering where it went.
*Acquired from Google Dictionary on 5/20/2020.
GHS is always here to help you understand that best option for you. Call us if you need us at (800) 732-4447, or message us on Facebook to work directly with Lisa on your budget.