What a Budget Really Is

Most of the time I talk with people about the psychological issues surrounding compulsive spending and tend to stay away from the practical issues of budgeting since I am not a financial planner or an accountant. However, I have come to notice in my practice that a 3 is a "fluid" thing to most people. 

I try to listen carefully, what is really being said and what is not being said. I really hear, " I keep everything in my head and rationalize my spending based on what I am thinking about in terms of money and basically, I don't have a budget and I don't want one." What is not being said, concretely, is "I know how much money I make and I base my spending on how much I can afford!" Most of the time I talk with people who do not know how much money they actually have to spend on bills, rent, food, clothes, movies, trips, business expenses and medical needs. What they do know is what they want to spend and sometimes, but not always, what they need to spend. 

This is where a real budget comes in handy. A budget starts with income, whether it be from a job, a trust fund, or babysitting. To some degree, this number should be static, that is, it is the same amount every month. This is the money a person has to spend and live off of, to pay rent, bills, repairs, food, clothing, children, etc. It is important to know how much money you make per month because then you know how much money you have to literally spend. I notice that when I talk to people with compulsive spending problems that they don't necessarily buy outrageous items, they buy too much stuff for the amount of money that they make and when they run out they use their credit cards.

Expenses is the other side of the budget. A person has fixed expenses, things that need to be paid every month and usually cost the same each month, like rent or a mortgage, health insurance, car insurance, cell phone bill, credit card payments and car payments. Other items that are considered expenses are food, clothing, dry cleaning, gasoline, computer expenses, entertainment, gym memberships, and dining out. These are not necessarily fixed, but a person can make them fixed by determining how much money they have available after all of the true fixed expenses are paid in full. Some things on a person's original list, like a gym membership, may not be on the budget because it can not be afforded. This is how you live within your means and really follow a budget instead of a budget following you. 

It might take some time to develop a working budget and get into the groove of following a budget, per se, but taking the time to become more aware of how you do things is the most important aspect of this process.