Without a budget you are not in control of your finances and have no way of measuring your success or failure

But all of the information and tools about preparing budgets are missing the point.  Do people get into debt because they don’t understand that they are spending more than they earn?  I don’t think so.

Preparing a budget is the easy part.  It is sticking to it that is difficult.

I can relate a story from my own slide into debt problems that illustrates the point.  A long time ago I made the effort to total up all my expenses and income.  I worked out how much my wife and I had to spend on “fun” things and decided to keep track of this by the extremely high tech method of keeping this money in an envelope each month.  One day nearing the end of the month we were shopping and my wife wanted to buy lunch in a restaurant.  I said we didn’t have the money (trusty envelope in hand!) and we had an argument about it.  In the end I gave in and we bought lunch on our credit card.  Our collective weakness was a sign of things to come.

There is a reason why lots of people give advice on making budgets but not so much on sticking to them.  That’s because one is simple and the other is very hard and complicated.

No money management tool will solve your money problems for you

Sorting out an addiction to spending is like dealing with losing weight or a chemical dependency.  The motivation for it needs to come from within.  You need to spend time thinking about why you want to spend money – is it to make up for low self-esteem or is it the result of problems in your past or even the way your parents managed money?  Understanding the reasons behind your desire to spend and addressing them is the real key to solving your debt problems.  Once you have done this then you can use any method for calculating you budget – a spreadsheet, a web-based tool, the back of an envelope!  It really doesn’t matter once you have discovered the motivation to sort out your money problems.

A lot of advice also ignores the uncomfortable fact that many people are not in debt because they spend on luxuries.  They have problems because they cannot earn enough for essentials or because of medical emergencies.

Have you had money problems and overcome them?  What was your motivation to do so?

Debt Worries – Don’t Worry, Take Action

If you are worrying about your level of debt then take action instead.  Do a full budget and look at ways that you can spend less so that you can pay off your debt more quickly.  Investigate whether you can move any debts to get a lower rate of interest.  Consider carefully whether a debt consolidation loan would be useful for you.

Consider whether it is possible or realistic to increase your family income to make paying off your debt quicker/easier.

When you have been through these steps then relax as much as you can.  If you are reducing your debt each month then you are doing well.  Stress is bad for your health and could actually contribute to you losing your job.

Money Worries – What Are They?

Are you worried about your level of debt, low income, or being able to invest for the future?  The solutions that you adopt will depend a lot on the answer to this question.  One of the first things to do is to write down all of your income and expenditure, any debts, and any savings or investments that you may have.  This will form the basis of your decision making process.

Money Worries – Debt

If you have a high level of debt and are worried about being able to repay it then you should seek the help of the many debt-related charities to help you resolve the problem (e.g. the Citizens Advice Bureau or the Consumer Credit Counseling Service in the UK).

Money Worries – Income

If you have lost your job or are on low income then check that you are receiving all of the state benefits that you are entitled to – again the Citizens Advice Bureau should be able to help you.

Investing For the Future

If you don’t have enough money to invest in a pension or savings then start off by looking at the budget you have prepared and identify areas where savings could be made, e.g. reducing television subscription deals or shopping at discount retailers.  You will be surprised how much your monthly budget can be reduced without significantly changing your lifestyle.