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Topics: Budgeting |
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| Budgeting Basics |
Submitted by:
anonymous 04/29/2009 4:56 PM
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Editor's Note: This comment was submitted in response to our newsletter question: Any Tips on How to Maintain a Monthly Budget?
I've budgeted my money my whole adult life and have modified it many, many times as the need arose over the years. Here's my basic plan:
- Figure out how much each monthly bill is, plus any cash you spend--like your own cash "allowance" for the pay period, money for gifts, plus any savings you do such as IRA account, regular savings account, Christmas club account, etc., & write these down in a column on a sheet of paper.
For things like electricity or heating fuel that are much higher at certain times of the year, go thru your check register and add up the previous year's payments (go a bit on the high side) - divide this number by how many paychecks you get per year. This is the amount you need to set aside for electricity & heating fuel EVERY paycheck, even when the bill is much lower (you'll need the extra money for the other months so hang onto your cash and don't spend it or you'll be short later!).
When you have EVERY dollar of your paycheck accounted for, you're ready to start your own personal budget. If you don't get exactly the same amount every paycheck, write down the range you have for each flexible category -- for example food/postage/cleaning supplies lumped together category may be $50-$82 (if you get paid twice a month, the first paycheck may be one amount and the second paycheck may be another amount; or this category may even be a different amount each payday, depending on what your paycheck is).
Don't be afraid to go in $1 increments, this will save you a LOT of money when it's all tallied up. Always start a bit on the high side and adjust down later if you routinely have a large amount of money in particular categories that you don't seem to need for that category and you really could use the money elsewhere - EXCEPT those categories like electricity & heating fuel or you'll blow your budget right off the bat when you can't pay your bill!
- However it works for you, make categories for each area of spending and savings that you have. I have categories for everything:
- charitable contributions ($10 per paycheck; 26 paychecks per year, which is every other week);
- Christmas savings ($10 per paycheck);
- food- which for me includes postage, cleaning supplies, etc.;
- gas for my vehicles (I have a particular convenience store credit card and all gas is purchased on it, so I keep track of how much I spend on it-PAID IN FULL EACH MONTH);
- car insurance;
- house taxes;
- my regular savings account;
- my cash "allowance," etc.
I account for EVERY dollar of my paycheck, and I'm very realistic about how I spend my money - I even have separate funds for each kids' activities (swim lessons/camps/club fees), piano lessons & school fundraisers so I'm not caught off guard when this comes up. I save goofy amounts like $2 or $3 or $13 or $26 per paycheck in some categories. If $3 is all I need, why budget $5 to round it out - I may need the $2 somewhere else.
I keep track of my budget on a sheet of paper with like categories grouped together on my sheet - for example, all of my cash categories are grouped next to each other, all of my categories for my checkbook are grouped together, all categories for my savings accounts are grouped together, etc. You can keep track of it however it works best for you, like separate index cards for each category in a recipe type box or in an Excel program.
I just use a master copy to refer to and then each payday I rewrite each category on a new sheet of paper with the total amount I started with at the last payday for each category after I balanced my categories/checkbook (ex: gas $56.38; food $63.01; savings $564-I move this to my savings account every couple of months; phone $3.67, vacation $275, etc.). I write the total above the name of the category to avoid confusion when I'm balancing each category later. I also leave plenty of space below the heading to add and subtract from each category - I actually use 2 sheets of paper, front and back, but I have a lot of separate categories.
- On payday I add and substract from each category on my budget sheet (amounts taken from my checkbook register) and make sure it balances with the checkbook. I've found that it works best for me to add to the category first and I balance those. Then I write the subtractions for each category and do the final balance.
Keep going over it until the total balance of all categories is exactly the same as the balance in your checkbook register - maybe you'll get it on the first try, it usually takes me more than once because I'll make a mistake somewhere along the lines - I just accept that this will happen and I will eventually figure out my error. I do not just leave a discrepancy because there IS an error on my part somewhere and if you just skip it, you will have a huge mess somewhere along the line!
I keep track in my checkbook register what category it goes into as I write a check or an automatic electronic payment is made directly from the bank. If I go to Walmart, I may have groceries, household items, gifts and my own personal items, and each of these will come out of separate categories; so as soon as I get home, I note this on the receipt and save it for the day I balance my checkbook/update my budget.
Sometimes I may have to temporarily have a small negative balance in a particular category for a short time if necessary--like my electricity bill is $20 more than I have. I have to pay the bill and I have extra money in some other fund that I can "borrow" from. I do not subtract it from a different fund, I carry a negative balance in that particular category until the money is there.
This works for me because I'm very disciplined about not spending money that will be needed later for bills, and I do have the extra money in my checking account to cover this for a short time until the money is added to the negative category the next pay period.
The key for me is that even though I'm saving for car insurance all year/every paycheck and that money is in my checking account, I NEVER use that money for something else thinking I'll save it up again later - like a new CD or camera equipment or a mini vacation or new jeans, etc.
- I always have an emergency fund and a household expenses fund - these funds are money set aside for emergencies, unexpected bills, home improvement items - like new curtains or computer upgrades or even when an appliance breaks and you need to fix or replace it, etc. I don't put a lot into them each payday, but if you don't spend them unless necessary, they do add up ($25 each paycheck twice a month is $100 in 2 months - nice when you NEED it; but even if all you can swing is $5 or $10 per paycheck, it still adds up!).
- I keep all of my money in my checking account because we have automatic deposit, but when I had to physically cash my check, I put most of it into savings and just moved it to checking as I needed it.
That was quite cumbersome though and I always had to watch my balance a lot closer. Now with a larger balance in my checking account (due to money being saved for car ins, house ins, house tax, etc., which are only paid once or twice a year), I do not have to pay monthly maintenance or per check fees to my bank.
I was not comfortable with the stipulations of my bank's option of earning interest on my checking account, so I skipped that, but I do review different aspects of my budget at regular intervals and some day I may do that too.
- Here's the biggie: Don't EVER EVER spend more than you have! If an item costs $100 and you only have $85, you wait until you have the full $100 to buy it.
Keep a running balance in your checkbook, but don't be fooled by a huge balance - each dollar is accounted for in a particular category, and if you don't have money in that category, you had better not be spending it!
- I have most of my bills set up on-line or automatic withdrawal from my checking account, and I always log them into the check register immediately.
- I do use my credit card for most of my bill paying and store purchases, but I PAY IT IN FULL EVERY MONTH - I NEVER EVER pay interest or late fees!! I use the card for convenience because I don't have or want a debit card (much more risky and problematic than credit cards, if you pay your credit card in full each month) & I earn rewards by using my credit card. I keep a close tab on my credit card bill on-line to make sure I can pay it in full, and if it's too large, I just don't go shopping for a while & this includes groceries unless absolutely necessary!
I won't kid you, it takes me a while to balance my checkbook/budget sheet each payday, and I don't even do it in one sitting because it would drive me batty! I do one aspect of it each day for 2 or 3 days and then it doesn't seem to be a chore. BUT, it has been a lifesaver as far as NO debt, and I am able to save a fair amount of money for things I need now, kid's college, different vehicles, retirement, & home remodeling - we've remodeled our entire home over quite a few years time without ever borrowing one dime to do it!
I hope this helps someone else out there! If this won't work for you, perhaps some aspect of it will be enough to guide you into creating a budget that will work for YOU :) |
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