With the start of the new year, many families have made a resolution to live with a budget and watch their pennies to ensure they have money to make their bills, go on a dream vacation, or pay for college and retirement. A budget is an excellent way to do this and is rather simple to achieve with just a little time and effort you could be managing your income and expenses and see where your money goes each month. The best part is, once you see where you spend your money – it is eye opening – you can see where to cut back and use your “found” money to pay down debt or save for a rainy day.
Do you know how to budget? In this economy, most people need to watch their cash flow to make sure they don’t fall short by month end. Trust me, we have been there. We are there now. Prior to Don’s cancer surgery and recovery, we never budgeted or even kept track of our checks and debit card purchases. Using credit cards was a way of life for us.
But, when money gets tight – especially after a medical emergency – you have to tighten your belt and learn to live with less. One of the things we began doing was keeping a budget. We also set up savings “kitties” to spread out larger or future expenses over several months. We have savings buckets for vacation, gifts, clothing, and our emergency fund.
Another way we began to save money was by shopping at Aldi. If you have never tried shopping there, or always thought of it as a “poor people’s store.” Think again. Aldi is a great place to find good, wholesome food. Ours has a vast selection of fresh fruits and vegetables, and their products are comparable – or even better – than our local grocery’s! But, that is another post…
How to Budget
First, you need to determine what your approximate gross pay is each week and write it at the top of your budget. Then, on a sheet of paper or the printable budget below, list each bill or outflow of money you have for the month – from your cable bill to your daily coffee. Begin filling out your budget – with the most important items first. You must have a place to live, transportation, and food for your family. So, deduct those first. The absolute last things you should pay are your credit cards. The information for your income deductions – taxes, health insurance, etc. – will be listed on your pay stub. For each item you list, put a budgeted amount. Some bills you will know the exact amount – like car payments or mortgage payments – but others you will have to make a best guess or access your account online to get the amount.
As you pay each bill through the month, notate the actual amount spent. At the end of each month, take a look at the budget and compare your budgeted amount to the actual amount. If you spent less than what you budgeted – GREAT. If not, you either need to budget more dollars toward the item or find a way to cut the expense down more. Most people have issues with dining out (like we did) and personal care items, like haircuts and nails.
The Goal of a Budget
There are several theories of thought on budgeting goals. Dave Ramsey suggests you budget to zero. Each month, every single dollar you have needs to be accounted for – any surplus should be used to pay extra on credit cards or be put into savings or retirement. Others suggest the goal is have a surplus – and that surplus be placed in savings each month. Obviously, you don’t want to be in deficit at the end of the month. If you are, you need to adjust your spending habits, or perhaps consider getting a part-time job until your debts (i.e. credit cards) are paid off.
Another good way to control your spending is to stop using your credit cards. Really. You can do it. We took every last credit card out of our wallets and locked them up. Our entire Christmas was paid for with cold, hard cash. The only “plastic” we have in our hands is our debit cards. It isn’t that hard to do… if it is so expensive that you need to whip out plastic – either you classify it as an emergency or you do without until you can save enough money to purchase it.
Obviously, a blown out tire is an emergency. A new plasma television is not. If it is a true emergency, this is when you would tap into your emergency fund bucket that you have been building through your budget each month. If it is a “want”, you just set up a line on your budget in the savings category for the item and begin allocating money each month to it. For example, we don’t NEED to go on vacation and it obviously isn’t an emergency, so we budget $50 a month to our vacation bucket. When we decide to go on vacation, we will use this money and have the entire vacation (or most of it) paid for.
I highly suggest you have both a checking and savings account. If your bank participates in a “round-up” program, I suggest that as well. We have all three. Our checking is used for our immediate purchases, such as gas, bills, food, etc. Our regular savings account is where we “store” our savings buckets. Obviously, they don’t label these buckets at the bank (how cool would that be!), so I keep track in my register and on a spreadsheet. Each time I transfer money in for a future expense, I jot down what it is for and put it in the correct bucket on my tracker sheet. The round-up program at our bank (and most banks) rounds up your debit card purchases to the next dollar each day. It is then put into our savings account. We use this for mad money. It’s already been deducted from our account… so, we look at it as “free” money. (Yes, we know its our money… but it makes it more fun this way.) We use this money, every once in a while, for special treats – like taking the kids to the movies or to Build a Bear or places like that.
Print out the budget below and get your bills together and get started! You can do this!