Setting Your Budget

So, you are ready to start budgeting?  This really isn’t as painful as you think. 

Know the Numbers

Quick.  Off the top of your head, what are your monthly fixed and variable expenses?  What is your net income after taxes and tithe per month?  What is the net profit or loss?  These are the important numbers that you will be getting to know and love as you make through each phase.   I know all of these numbers by memory, and even though it changes from time to time, I have a good idea of where our money is going each month.   (Note from Bryan’s Wife: Don’t feel bad if you don’t know these numbers off the top of your head.  Bryan is a freak with numbers.  But with this budgeting program even if you can’t memorize numbers, you’ll at least be able to find them when you need them.)

Numbers to know:

1. Fixed and variable expenses (aka: bills)
2. Net income after taxes and tithe
3. Net profit or loss each month

What are your numbers looking like?  Just like any business, Your Family, Inc. is ultimately trying to make a profit each month.  Some of you may aspire to run your own business one day, which is great.  Here is your chance to practice running a company, Your Family, Inc. and making it profitable. 

Living in the buffer zone

Most of us have such tight budgets that leave us with no room to breathe.   We spend every dollar of our paycheck on bills and day to day expenses, so when something out of the ordinary happens (we get sick, car breaks down) we freak out and scramble to come up with the money.  Or, better yet, we put it on the credit card.  This is what happens when we have no buffer zone. 

The buffer zone makes me think about a trip I took a few years ago in the mountains of central Mexico.  I was in a bus on a two lane road with no shoulder.  Over the edge was straight down for hundreds of feet.  I can say that I certainly got closer to God on those trips.  I have never prayed so fervently in my life.  With no shoulder on the road, we were always one hiccup, sneeze or yawn by the bus driver away from a complete catastrophe.

We do the same thing with our finances.  Instead of swerving for potholes, we swerve for doctor bills and car repairs.  When there is no buffer zone, these items send us over the cliff. 

What is your buffer zone?  Your profit margin determines the width of your road’s shoulder. 

The larger your buffer zone, the quicker you will make it through each step and phase.  The red, extreme intensity in phase 1 will create as much buffer zone as possible.   It is very difficult to tackle your debt when you have $10.00 at the end of each month to pay off your credit cards.   On the other hand, when you create a large buffer (a few hundred dollars a month) you start to knock out each step and phase very quickly. 

There are only two ways to increase your buffer zone; lower your expenses and/or raise your income.  (Wow, Bryan, you have a MBA and this is what you come up with?  Yes, yes it is.)

Lower Your Expenses

There are plenty of ways to lower your expenses.  I read article after article about, “save $3 a day, skip your latte.”  Check.  Yet, we spend $120.00 a month on our IPhone and another $100.00 per month on cable TV. 

(By the way, I am not hating on the I-Phone.  I really want one.  You will know when we are out of phase 2 and in phase 3 when you see me with one.) 

I am always looking for ways to cut our monthly bills.  I am not above negotiating with our service providers about getting a good rate on our phone, cable, or auto insurance.  I will talk about this in greater detail in a future post. 

Once you start tracking your variable expenses, you will notice trends that you may not have seen before.  This is your first step cutting down on the things that don’t mean a lot to you, yet zap a lot of your money each month. 

When you are in the red zone, phase 1, the objective with your expenses is to see how low you can go.  In fact, we will post a contest to see who can go the lowest on their monthly expenses.   I am not just talking about writing impossible numbers on paper, but actually living on low expenses.

Increase Your Income

Some individuals/families still struggle at the end of each month trying to create a buffer zone, even after they have trimmed their expenses down to the bone.  The only other way to increase your buffer zone is to increase your income. 

Getting a part time job at night is a sure way to increase your buffer zone and propel you through this program.  We jammed through our debt when I was working part time at night.  It was tiring, but it was temporary and worth it.