|Gary Foreman is a former Certified Financial Planner (CFP) who currently writes
about family finances and edits
The Dollar Stretcher website
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I was hoping you can help me solve a problem I have
encountered while trying to live on a budget. I have created a
budget with a fixed amount that can be spent on certain items, i.e.
entertainment. At times I go over this amount. I charge everything
on my credit card, in order to receive a cash back bonus. My bill
arrives the month after I overspend. That affects the cash flow for
the next month, not the overspent month.
I can't figure out how to
balance my budget, because my statements do not run on the calendar
month like my budget, but it goes from the 11th to the 11th of every
month. My problem is applying my budget to real life, because I
still want to use my charge card to pay for everything. Can you
please help me figure out this problem? I have tried over and over
to figure it out and I'm stuck.
A budget is meant to be a tool to
help you control your finances. And like other tools, finding the
best one for the job makes things much easier. You can't use a
framing hammer in place of a tack hammer. Budgets work the same way.
You need one that's designed to accomplish your goals.
There is no one official budget.
Celia will want to find or create one that works for her unique
situation. Part of that is deciding exactly what she wants to
Budgets are primarily useful in two
ways. One is to stop any spending over a preset amount in a specific
area. Another way a budget can be helpful is as a tool that will
help you find unnecessary spending.
Although Celia doesn't exactly say
what she's trying to accomplish, it sounds as if she's hoping that a
budget will help her stop spending after she gets to a specific
If that is her goal, she'll find it
hard to continue to use credit cards. That's because credit cards
are designed to make it easy to spend money. Even money that you
That doesn't mean that she should
give up. The first thing she needs to recognize is that you're
spending money when you make the purchase. Not when you get the
bill. The only 'purchase' that you make at billing time is the
interest and any annual or late fees that are associated with the
So, instead of depending on her
monthly statement, Celia might need to keep a spending record for
each category in her budget. When she makes a purchase add it to the
list for the appropriate category. When the total for the category
is up to the budgeted amount it's time to stop spending for the
If she really wants her budget to
keep her from spending more than she planned the simplest solution
would be to ditch the credit card and just go to an envelope system.
An envelope system has a separate envelope for each category. At
the beginning of the month she'd put the appropriate monthly amount
of cash into each envelope. Purchases are made with cash from the
envelope. When the money is gone the spending stops until the next
It sounds as if Celia might be using
the credit card statement to tell her where she spent her money each
month. If that's the case she might want to change her 'budget
month' to begin on the 11th. Or she could ask her credit card
company to change her billing cycle. That way her credit card
billing and budget periods would coincide.
Another possibility would be for
Celia to simply adjust this month's budget allocation for any
overspending that occurred last month. If she went $10 over her
entertainment budget, she'd simply have that much less for
entertainment this month. It would require monthly adjustments. And
the temptation would be there to continue to carry over-budget
expenses from month to month and never really control spending.
Celia needs to recognize that a
budget is a continually changing thing. She's going to want to
adjust the amounts as she learns more about her spending habits and
as circumstances change.
One final comment. However Celia
proceeds, she'll be much more likely to be successful if she keeps
it simple. A budget shouldn't be any more complicated than is