Personal Finance 101: Budgeting – it doesn’t have to hurt

Posted by Bruce Mc on Nov 27, 2009 in Information, personal finance, saving money, Things forgotten | 0 comments

         With the economy as it is and all that’s happening in our country and around the world, most  people are looking for ways to save money, cut out waste, spend less, tighten their purse strings -whatever you want to call it.  We all are trying to survive on less, to make more money or figure out ways to make what we have go further.   I thought this post especially timely as the holiday season is upon us and many of us are wondering how Santa is going to make it all work this year. 

         There are a couple of basic things involved with managing your personal finances successfully; know how much money is coming in and how much money is going out; then make sure more is coming in then going out. It sounds easy enough but actually requires some careful planning.

          A budget plan is a chart that shows you the flow of money in your everyday life.  A budget can help you determine where you are overspending as well as help you adjust bad spending habits.   Usually by making slight adjustments to your budget, you can create the ability to save more or free up money to make larger payments on your debts or at this time of year, buy presents for your family and friends.  YAY for presents & smiles & fun & good food & egg nog!!  Oops, I got a little carried away, back to the budgeting plan.

          The first thing needed to create a successful budget plan is to know exactly the amount of net cash you have coming in each month. So start by gathering your paystubs, deposit slips, if you have reoccurring monthly bank deposits (alimony or child support pmts, SSA, pensions, etc).   It’s a good idea to have either a monthly budget book or even an online planner. Even something as simple as an excel spreadsheet works, but you need something where you can record your expenditures and income.   Start by keeping track of all your monthly living expenses and other monthly bills.    There’s really no need to spend money on fancy budgeting software – you can go online and Google “budget plans” and you’ll find some great household budgets you can download, copy or print for free that are pretty good and will get you started.  You can “tweak” it to fit your own expenses – there’s usually a couple miscellaneous categories already listed anyway.  You can even do this on a piece of paper.

         I always suggest that you start with the “known” or fixed expenses each  month, like car payment(s), rent/house payment, car insurance, medical insurance, etc. and enter those.  Then go to your bills that you need to get a 12-month average for, like your utilities.  By looking back on your heating bills, phone & electric bills from the last year, you can get an average monthly amount and in many cases the utility companies will let you go on a monthly budget plan if that’s easier for you.  If you don’t know or didn’t keep records of those bills for the last 12 months, most utility companies can get you those figures easy enough if you ask, in most cases at no cost to you, or a very minimal fee.   Groceries are a little harder to determine as well as eating out so the best way for you to truly set an accurate budget is to track every single expense for at least one full month, usually two months in a row if you’re doing this for the first time or it’s been more than a couple of years since you’ve done a budget.  I know it can be a pain in the behind but it helps you to get the most accurate picture of your finances and a place to begin and usually people find out they’re spending a lot more on things they don’t really need or didn’t know they were spending that much money on and it helps tremendously in giving you back control.

          The other thing in creating an accurate budget plan is to remember to include all the little things most of us don’t think about, like buying a specialty coffee or latte on the way to work or a few lottery tickets a week or month, garbage pick-up, paper products, a drink or two out with friends,  kids or adults lunch money each week.  Lunch money can add up real quick as I found out in my house when my 3 daughters were all in 3 different schools and I was shelling out lunch money every morning.  When I added it up, I had to add another category to my budget plan since it was over $150 per mth just for them!  And yes sometimes I did pack their lunches but that still cost me on average $2-3 per day (about the same as hot lunch) so I still had to plan for and budget that in – and it wasn’t something I thought of at all at first.

           You also really need to control your emotions and try not to “impulse buy”.  I know…I know sometimes you just have to have that chocolate bar (ladies you know what I’m talkin’ about) or a Friday night beer or two after work, and by no means am I suggesting you cut out all those types of indulgences – after all, you work hard for your money and if you can’t buy a few frivilous fun things to relax or reward yourself once in awhile, then what’s it all for?  I agree…but the point here is in order to make sure you have enough money at the end of a given month to be able to do those things while still paying all your bills and saving some money, then you have to first have an idea of what you’re spending and where.  Most of the time people find they can save a substantial amount ($100′s per mth sometimes) by cutting out things that they really won’t even miss; like the morning latte.  Or….still get a coffee on the way to work if that’s what you really like, but make it a regular for $1.50 instead of a specialty drink at $4.  Or if you usually go out to lunch at work and you really enjoy it, try going out only 3 times per wk then pack some of the time.  Or eat out where you know you’re likely to have leftovers.  That way if it’s an $8 lunch but you can eat the rest the next day, then it now became a $4 lunch or give yourself a weekly “lunch out” budget.  It might sound a bit silly but I know for me, as a single mother of 3, at times when things were so very lean, I had to do that to survive or be able to get birthday presents, and I still do the “weekly lunch out” thing – it just makes good sense to me.  And none of this is complicated or has negatively impacted my daily life…I’m still feeling “fulfilled” each day whether I pack a sandwich and some fruit from home or got out with friends from work that day.  

          Remember to keep all receipts for 2 months and then you can go back and create an accurate budget plan.  Then you can pick and choose for yourself where you want to cut things, change things in order to meet your financials goals.  Whether it’s saving money for the future (which that’s a topic for another day) or coming up with money for Christmas or birthdays, a vacation fund or maybe it’s just being able to pay all your bills ontime and not feel so stressed.  Whatever it is that you want to accomplish, ask yourself  ”Do I really need to buy this?  Can I cover it in my budget?  Is it going to help me with my long term goals?  Can I live without it today?    We all hope to have discretionary income each month to have fun with but sometimes we have to learn to cut back temporarily (hobbies, entertainment, specialty clothes) to have more in the long run.  I hope this helps – maybe even inspires you to get started today and hopefully add a few more presents under your tree this year.

Kimmer