Thinking Of Making A Budget?
Topics: saving money, budgeting
I feel that the first step toward being on top of your finances is starting a budget. This allows you to be able to closely examine how much money you have coming in, and how much is going out.
I used to be one who never worked out a budget. I didn’t keep track of my expenditures in a checkbook register or log. I just spent what I thought I could spend on what I would want, without thinking too much in detail about how this related to my income.
It was like “use the credit card here, use the debit card there,” and then when the bills would come in, I would scratch my head and think “how did all that get there!”
This is what got me into credit card debt in the past. I didn’t keep close track of my expenses, and when my direct deposit pay stubs would come in (I worked hourly at the time), I would just throw them on the mail pile, without tracking the exact amounts to see how much came in for the two weeks.
So basically, I was operating on a system of guesswork.
I can stress to you that this doesn’t work toward good financial health! So what to do?
Start by gathering all of your pay stubs for the past three months, all of your regular bills (electric, water, insurance, etc.), a calculator, a pen and paper, and devote an hour or so to making some calculations. Add up how much money you have generated in income, how much you have spent on your regular bills, and see how much is left.
If there is very little, or you find that you have a negative number, then consider if there is anything that you can do without, or reduce the cost. Do you have any regular monthly memberships that you can discontinue?
Could you consider shopping around for car insurance for a lower rate? What about the deductibles? Could they be raised to save on the monthly cost? Could you start an energy savings program at home to save on utility costs? (More on these subjects later.)
Examining these things closely allows you to “trim the fat” and see if there are any opportunities for savings on things you may not normally think about. I can almost guarantee that you will find areas for opportunity.
Now that you have factored in all of your regular bills, and maybe have found ways to save and reduce the recurring bills, you should now have a good idea of how much is regularly coming in, and going out. Now you see how much you have to work with for other necessities.
Gather receipts, if available, for all of your food-related expenditures during the past three months. If not available, consult your checking account or credit card statements. If you paid cash, estimate. In any case, compute how much you spent over the course of these three months, and then divide by 3. This will give you a rough estimate of how much you spend monthly on food.
How high was it? Do you see room to lessen the amount? Could you eat out less or cook from scratch more at home? Is there opportunity to save at the supermarket? Try to figure how much you feel is reasonable and affordable for you to spend on food, and factor this into your budget.
Do the same as above for what you spend on gas for your car. Again, is there any room for saving on the amount of gas consumed? Do you live close to public transportation? Can you carpool to work? Is it possible to consolidate errands into one trip? Can you adjust your driving habits to increase your vehicle’s efficiency?
Think about the many ways that you can reduce the amount of miles you drive, and you will be surprised at how many less times you have to stop by the gas station!
What about health-related costs (doctor co-pays, prescriptions, etc.)? How much are these costing you, and are there any ways to save? Could you substitute generic prescriptions for name brand ones?
Obviously, this is one area where you have to follow your doctor’s direction, so there may not be much room for savings, but it is important to know how much this costs you monthly, so you can budget accordingly in other areas to make sure that you have plenty of money to devote to these necessities.
Auto and home maintenance/repair costs? Do you keep your car well-maintained? What about your furnace or air conditioner? Preventive maintenance will certainly save you loads of money in the long run in this area, so it is very important to factor in a certain amount of money to this area to ensure that you have funds set aside to perform tasks like periodic oil changes, transmission fluid flushes, etc.
Keeping your car in optimum running condition will prevent a lot of headaches in the long run.
What amount of money do you expect to spend on clothing, beauty products, toiletries, cleaning supplies, etc? Very important to keep in mind!
Don’t forget about entertainment! Of course everyone needs to have a little fun too, but just be sure this category isn’t overshadowing and taking away from the necessities. After calculating your average expenditures, have you found that maybe you are going out on the town on too many occasions?
Is the morning/evening coffee stop taking up too much money? What about books? Are you purchasing an excessive amount, when you could really be checking out books from the library?
Don’t feel like you have to penalize yourself in this area by directing all money spent on these items to other areas, because it is important to have a good balance in life, but this is an area where many may realize they are spending far more than they can afford.
And last, but certainly not least, how much is left for savings? While I’m sure I may have missed some expense categories above, I think I have covered some of the most common. But I think this one could be one of the most important.
If you find that, after doing all of the calculations above, you have very little, if anything left, or especially if you find that you are having to put expenses on credit cards in order to make ends meet, then it may be in your best interest to find ways to scale back on some expenses, to budget certain amounts to make sure there is enough to go around for all categories, and to make sure to allow for some savings.
Learn more practical, easy ways to manage and save money at the Money Theory Blog:
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