how simply DO you live when you have loans to pay off? when you CAN make minimum payments, etc.And it's a valid question. Do you put every last penny toward loan payments? Is it acceptable to have "fun money" that doesn't go toward paying down debt? What's the balance?
My immediate thought, and my answer turned toward a budget. If you don't know where your money is going, it is impossible to reflect your values and priorities in regards to spending. Yes, you can continue to make minimum payments & pay bills without a budget, but to plan for "extras"- whether that be extra loan payments or a Vacation or Eating Out fund, or giving to charity- you have to know how much you have left over, and plan for where it ought to go. Hence, the budget.
Why Does a Budget Matter?
I contend that a budget is a document reflecting a person's priorities and values. Jesus agreed- "Where your treasure is, there your heart will be also." Where my money goes directly reflects where my heart is- what is important to me. If you're a crazy Colts fan, your money will follow, buying season tickets and all the Blue gear you can get your hands on. If you are passionate about gourmet cooking (or golf or pets or any hobby, really), gadgets and merchandise abound to support the hobby, and your wallet or pocketbook will follow your passion. A budget matters because it reveals what matters to me. It allows me to make a conscious decision on where my money is being spent, and gives me a way to reflect my priorities in my saving and spending.
Why Have a Budget?
To be a good steward of what is entrusted to me, I must know where it is being spent or invested. I must be able to give an accounting of it. If I want to be serious about making sure my spending & saving are in line with what really matters to me, I must have a budget. Also, a budget makes me the master of my money rather than Money my master. I don't worry if I'm going to have enough in the checking account to pay the bills if I already set aside the bill amount in the budget. I never have to worry about overdrafting or using a credit card if my lifestyle is already planned out, and I have made the choice to not live beyond it. I don't have to worry about checking the bank account balance online all the time to see if I have the money for this or that, because I already know the limits I've set. (As a side note: We budget many of our items as cash, so I very, very rarely even use a credit card. I have to worry even less, this way, because I know all the money budgeted is in hand, and if the cash envelope's empty, so be it, I can't spend negative cash.) The freedom from worry is my favorite aspect of the budget.
How do I Make a Budget?
To make a realistic budget, you have to start with Reality- what are you actually currently spending every month? Write down fixed minimum bills- rent or mortgage payment, loan minimum payment, average electric, water, gas, trash, phone, internet, TV bills, regular giving, whatever it is for you. These are obviously non-negotiable. they must be paid, and must be a part of your budget. Next, include less obvious, less frequent expenses. Car insurance due twice a year? Divide the amount by 6 and include it in a monthly budget. Car registration once a year? Divide by 12 & do the same thing. Think of other less-regular-but-still-necessary expenses and add those line items. Don't forget anything! If the budget is going to work, it has to include everything you can think of, so there are no surprises to throw everything off later. To be honest, this will take a while. When my husband & I first sat down to budget, we didn't take into account Christmas (and all the birthdays that come within a month either direction). It's a learning experience. I haven't discussed much about Gifts and Food- two things that are very variable, based on your values. I mean, you need a food budget, because we all eat- but will you buy prepackaged or preprepared food? Gourmet? Organic? Local? Peanut butter & jelly? Food budgets vary widely. Gift budgets do, too- setting a spending limit (and saving for that limit beforehand!) is important.
So, you've got all your Musts in a list. What's left? The Wants. Stuff like Eating Out, Vacation, House, Car Replacement, Extra Loan Payment, Clothes, Entertainment, Extra Giving. This is where your priorities shine through. For us, our relationship is top priority, and our entertainment is eating out, so we plan on a meal or two out every week. We also have our future in mind, so our VERY first savings priority was an Emergency Fund. Now, our future goal is getting into a house, so a large percentage of our income is being put into a House Down Payment fund. When we have a house, a car will be up for replacement, and our priorities will shift. Right now, we're comfortable with the school loan interest rate & amount after the school loan consolidation Josh did before he graduated, so we're not paying that off like crazy- yet. We are pretty debt-averse, so that's a priority when the other saving goals are accomplished.
This budget thing is sometimes hard to get used to, and maybe it's because I just like structure, but it has been a lifesaver for me, freeing me from worry about both the immediate and long-term future. I feel like the document gives me a choice where my money goes, as well as a peace of mind, knowing that everything's already taken care of and planned for.