5 Things to know when you budget for your finances ? Part 2 ...

Planning Your Finances Wisely

Rule Three

?You will, without a doubt, fail. Knowing this, it?s important that you learn Rule Three.?

Inevitably, and especially when first beginning, you will go over your budget in certain categories. Some categories lend themselves easily toward overspending (food and entertainment seem to consistently be the top two).

Rule Three stipulates that you ?roll with the punches?. In boxing, the idea is to move your body in the same direction as your opponent?s punch to lessen the blow. This ensures that the fighter can stay on his feet to continue the fight. The focus of Rule Three is to lessen life?s blows to your wallet and keep you on your feet and in the fight. In other words, when your first month comes to a close and you see several categories with spending overages, I don?t want to see you throw in the towel.

At the beginning of each month you will sum all of the category overages from the previous month and deduct the total from current month?s Available funds. This little manoeuvre does two things:

? Pays back the surplus categories so their amounts are correctly stated (your surplus categories are what made it possible for you to overspend and not overdraft your bank account).

? Allows you (if you so choose) to spread the damage of your overspending across all of your money instead of forcing you to try and rebuild a category that took a big hit. This is more a boost for the psyche than anything else.

Rule Three is very mechanical and is there as a conservative safety mechanism. It basically forces you to address mistakes of the previous month before you begin budgeting for the coming month. You?re paying your future self back.

Rule Four (the Grand Daddy of them All)

The goal is to live by Rule Four, or, in other words, to stop living paycheck to paycheck. The bare-bones mechanics of it all is that your primary income (your main source(s) of income) that you earned last month is what you will spend this month.

The crux of Rule Four is a simple, work towards living on last month?s income. I?ll spend the next little while trying to persuade you to accept it. It will completely revolutionize the way you think and feel about your money. Rule Four is, in three words, peace of mind.

A simple change in the timing of the spending of your income will have profound effects on your financial situation. You will:

? Experience significantly lower amounts of stress.

? No longer be required to time bill paying with the arrival of a paycheck.

? Budget your income, regardless of its variability, with 100% accuracy.

? Have the breathing room necessary to make better financial decisions.

Rule 5

Two-Way Communication (the Budget Meeting!)

It makes perfect sense that the monthly budgeting meeting can be seen as a contract between two parties: You and your spouse. Just as with contracts in business, there is usually a period of negotiation between the two parties prior to agreement. This same healthy negotiation pattern should happen when you?re budgeting with your spouse. Healthy negotiation involves honesty, compromise, and respect. If those components are not present when you?re forming multiple spending contracts with your spouse, it?s best to work that out before you get so deep into negotiations that you?re ready to tear your (or their) hair out.

It all comes down to your willingness to choose. Begin by simply writing down what you spend, and your experience will reinforce these ideas in your mind. You?ll find the desire to continue the experiment and on some evening in the near future (how about next Saturday?) you?ll sit down and set up your first budget.

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