How to Make a Budget (the dreaded “B” word).
5 Basic Budgeting Tips:
Tip #1: How to Budget for Large Purchases
When planning for large purchases is to make sure you include not only the fixed, known expenses, but also the variable, unknown expenses. Your six-month car insurance premium is a fixed, known expense. Your tires needing replacement is a variable, unknown expense.
The key is to estimate these purchases and break down your obligation into monthly increments, then make sure you’re setting aside those amounts each month. With the traditional envelope budgeting method, you would set aside $100 into your Car Insurance envelope each month for six months if your 6-month premium is $600.
Not too long ago, in the days of pencil and paper, tracking these types of things was doable, just not enjoyable. In these days of computers, software helps makes handling large purchases a snap. You simply budget that $100 into your Car Insurance category in the software, and it tracks the balance accumulation for you.
Tip #2: Your Savings is an Expense (This One is HUGE)
You would not dream of not paying your electricity bill, rent, or gas bill. But, there are many not paying themselves first. The key is to shift your mindset and treat your own personal savings as a top-line expense (you’ll THANK me later for it). You want to pay yourself first, before you set aside funds for your other obligations. Think of it this way…You’re paying yourself now, so you won’t have to work later!
“Pay Yourself First”
If you’re using software such as Quicken, you can create a Savings Expense category and record all payment to savings as an expense. Doing this also lets you run meaningful reports. For example, a great number to know would be what percentage of your gross income is being saved for retirement.
Tip #3: How to Budget in Flexibility
An important principal in budgeting is to make sure you give every dollar a job. You must make sure every dollar is being accounted for. This does NOT mean that you’re required to only spend the minimum possible in every single spending category. If you need more flexibility in your budget (you’ll feel it if you do) then you should build that into your budget. Don’t like counting pennies while you’re at the grocery store? Budget a bit of padding in there and be content with that!
“Build in a Little Padding”
Budgeting is planning, and you can plan some padding into your budget so you don’t emotionally rise and fall on every over or under in your spending categories.
If you are using personal budget software, make sure it allows you to modify your budgeted amounts. What you don’t want is to be restricted in how you assign your dollars jobs just because the software won’t let you make a few adjustments. Adjustments are a part of life — if you are not having to make adjustments, you’re probably not budgeting.
Tip #4: Facing Budget Reality – Cut Back or Increase Earnings
Most of the time when you learn how to budget, and put into action these basic principles in your life, you will find you have “more money” than you previously thought you did. This “magical” appearance of more money stems from the fact that your awareness has changed, and that you are being more selective about where you are spending money.
On occasion however, people realize that they have being living beyond their means; and, if this is your case, then feel comfortable in the fact that you at least KNOW where you are currently with your finances. You are faced with two options — and you can choose both if you want to.
Your first option is to eliminate any unnecessary expenses. Evaluate discretionary spending such as subscriptions, eating out, entertainment, etc. If the discretionary expenses are not offering any additional room, it’s time to evaluate larger commitments such as the car you are driving — and yes, even where you’re living.
Some data analysis can go a long ways here. If you can run a report showing all of your category expenses, you’ll quickly see what may be reduced, and what is fixed for the time being. Use budgeting software to show you where you may need to make adjustments. Whether you actually make those adjustments is still up to you.
Your second option in facing your budget reality is much more enjoyable. You can actively search for ways to increase your income. If the expenses are temporarily higher, you can look for temporary ways to increase your funds by selling things on ebay, working overtime, or picking up side jobs. If you’re looking at an expense situation that is longer-term, you may consider these short-term tactics, along with some longer-term tactics such as job searching, education, etc.
Tip #5: Create Breathing Room by Cutting Back on Debt
One of the biggest strains on a budget comes from your debt load. If you pay down your debt, your monthly cash flow situation will improve significantly. Consider implementing the ‘debt snowball’ method, where you pay additional monies toward your lowest cash balance debt, and minimum payments on all others. Once that first debt is paid off, you roll its minimum and all the extra funds toward the debt with the next highest balance. You may consider using a debt reduction calculator to do all of these calculations for you (we have the Debt Elimination spreadsheet…that does it for YOU for FREE). Email me to request it: FastLoanAprovals@gmail.com
How to Get Budget Help
One of the great ways to get help when learning how to budget, and then implementing those practices, is to find a support group (local or via the web) . Finding like-minded people all striving toward the same goals can be very motivating! YOU CAN DO IT and I’m here to help! Cheers!
. Kidding aside, rates are at its lowest in history.
