Tuesday, June 18, 2013

life lesson: budget it!

Back at the beginning of the year, I set a goal for myself and how much money I wanted to save by the end of the year. Not so much a New Year's Resolution, as I've always made an effort to save money, but more a hard and fast goal that I'd work my hardest to achieve.

I'm sure in one way or another, we've all felt the squeeze of our changing economy, whether it's seeing an increase in prices at the grocery store, higher prices at the gas pump, or simply a decrease in extra spending money. I've tried budgeting in the past, but it wasn't something I was ever able to keep up with. I tried apps I downloaded for my iPhone, followed tips I found online, and even made charts on my computer. But the best way I've found to keep track of my spending and see my progress toward my goal? Good old fashioned paper and pencil.

Before sitting down to plan your budget, there are two categories of spending you should consider: static expenses and variable expenses. Your static expenses are those that are same, whether month to month, or year to year. You may have static expenses such as rent or a mortgage, insurance (auto, home or health), a gym membership, your annual car registration or AAA membership, etc. that are the exact same amount every time they're due. Variable expenses are those that will change maybe daily, weekly or monthly. Utilities are often a variable expense, since the amount of the bill depends on your usage, but groceries and spending money are also variable expenses because you likely won't be spending the exact same amount every month.

Since static and variable expenses are incurred differently, I tend to track them in different ways, too. I've made a budget worksheet with sections for my once a year expenses, once a month expenses, and those expenses that I may even incur daily. After my once a year expenses have been paid, I simply record the month paid on successive monthly budget worksheets. For static monthly expenses (rent, Netflix, my gym membership, etc.), I record the date the payment was made. For all other expenses, I record both the date and the amount paid. For categories like spending money or groceries, this is really helpful since I may spend money from this category every few days.

Finally, at the bottom of my budget worksheet is a section to track my monthly income.

At the end of every month, I total each section of my budget and compare it to the amount I budgeted. If all goes well and there aren't any surprise expenses, I come in under budget. If I'm over in one category but under in another, it's good to total all real expenses versus all budgeted expenses to find out if, overall, I'm still under budget. Give yourself some flexibility the first month or two of using a new budget in order to figure out just how much is the right amount for you or your household for each budget category. Don't get frustrated if you're not on or under budget after the first month. With a little trial and error and adjusting your budgeted amount for various categories of your budget, you'll get there. But don't take this as an excuse to allow yourself an absurd amount of spending money while trying to get by on as little money as possible in another category.  

The goal at the end of every month is to be able to transfer as much money as possible into savings at the end of every month, or whatever time may be convenient for your budget. I include an un-budgeted category for my savings account on my budget worksheet so that I can keep track of how often and how much money I transfer into savings. Maybe you have a "big ticket" item and you're trying to save enough money to pay for that item in cash rather than credit. Perhaps you're saving for the down payment on a car or house, saving up for a vacation or just trying to reach a goal to begin investing your money. Whatever your end result, budgeting is a sure way to hold yourself responsible and see your progress as you reach your goal.

Don't forget to keep yourself organized and track your expenses every day. I like to keep my budget worksheets in a binder at home. At the end of every day, I go through my receipts, mental notes or notes in my phone, and transfer the day's expenses onto the budget worksheet. The key really is to not let yourself get behind. Spare 5 or 10 minutes at night to update your budget worksheet. One of the benefits of this budget plan is that you don't have to organize multiple envelopes of cash just to keep yourself on track. You can still use a debit card for your spending - just write everything down.

Feel free to take advantage of my sample budget worksheet, found here. Note: This file will open as a Google Document. If you choose, you can download it as a Microsoft Word document so that you are able to change the budget categories and amounts to make them applicable to your or your household's monthly budget.

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