Tuesday, September 30, 2008
Setting up a budget
Everyone is really paying attention to their money now that the economy has been struggling. It is really easy to let small amounts of money fall through your fingertips, twenty here, five there. The easiest way to control what you have is to budget and tell your money where to go. I love budgets, I am a real nerd. It is hard for me to conceive that everyone does not like to budget and work with numbers but I talk to people all the time and see that they really get anxious at the thought of having to sit down to budget. They look at it as torture or don't want to be "tied to a budget." It is not tying yourself down, it is freeing you to be confident that you will have money at the end of the month. It is just a tool to use.
How do you set up a budget? What do you include? Well, this is how I set mine up.
First, I make a list of all my expenses. Include everything. There are some things that you do not pay monthly, but you have yearly or semi annually, like car insurance or Christmas spending. Include those items. I take those items that occur less often than monthly and divide by the months that come between each payment. That is your monthly amount you need to save. What are some of the catagories?
House or rent payment
activities(baseball fees, AWANA, dance lessons, etc.)
entertainment(movies,dinner out, family outings)
auto maintenance(tires, oil,repairs)
Think of anything that you are spending money on and make a catagory. I find that if I have more specific catagories that I am able to watch where my money goes better than if I try to lump a lot of things into one catagory like "household."
Next, I write the amount by each item that is the minimum required for that item. For example, what is the base amount charged for your phone. I do not add any extra amount for flexible long distance or add on features. At the top of my page I write our take home pay. I then take the amount we get for the extra two paychecks we get per year and divide by twelve and add that to the base monthly pay. I then subtract the amount of all the catagories and see if we have any money left or if we have used all the money. If you are over budget (don't have enough money for all the items) you have to go through and reduce things to fit. Take $20.00 of groceries, remove vacation funds, whatever you have to do to make your amounts work. If, after you remove/reduce all you can and you still don't have enough you HAVE to find additional income. You are really upside down and just are not making enough to support a basic life. Hopefully, you have money left, instead. Now, go back and increase items that you usually spend more on or make the decision to keep those items at a bare minimum and save the additional money. It is really cool to take what you think is a thrifty budget and sqeeze more by reducing catagories just $5 each or as much as you can.
I like to add up all the items that are not monthly expenses and have that amount automatically taken out of each check and transvferred to an additional account for saving it until the payment is due. It is so nice when Christmas comes to know you have money saved and sitting there when you go shopping.
If you are beginning to get control of your spending it is a great idea to put money for food and clothes and other items in envelopes and pay cash only for those items. It is much easier to control spending and know what is left. You end up making better choices in what you buy. You don't add items to your cart as easily.
I set up every bill that I could on automatic payment. I don't have to worry about trying to get a bill sent off. I set up our bills and checking account on a Quicken program to record and track spending. Through that you can set up your bills and it will show a list in order of what is due next. We get paid every two weeks so I sit down the Thursday before the Friday pay date and record all our payments. This way I only have to do budgeting stuff every two weeks. I pay/record every bill that will be paid or due withing the next two week period. I have been lazy and have not been recording our daily reciepts for purchases for items until that two week period. We have been living on a budget for our 20 year marriage so it is all second nature. If you are starting out you need to record them daily or more frequently just to keep a check on yourself. Better if you are using the cash system for items, you don't have to worry about recording reciepts. I love that I can sort on Quicken by catagory to see if I am on target for groceries or whatever catagory.
If you freak out at the thought of a budget I would love to know what it is that makes you feel that way. Is it a feeling of being told what to do? Is it a fear of not having enough? I am just curious what it is that makes you want to avoid it.