Tuesday, January 7, 2014

Budgeting 101: Where to Begin


Yes, I said the "B" word.  There's no easy way around this.  You MUST have a budget.  No if's, ands, or buts.

It's not as hard as people may make it out to be.  Finances are one of the top things people struggle with.  Having a budget and keeping to it takes a LOT of stress out of your life.

So where do you start?  Well, you'd like to keep a roof over your head, have heat, water, and food, right?  Let's start there.

ALPHA-ONE PRIMARY BILLS:


Sit down and list out the amounts you pay for rent or mortgage, utility bills, and groceries.
  • Add up receipts, or your online banking or credit card statement for all spending for these in a month
Don't include things like car fuel, cable and internet just yet.  Only the bills you need to pay to keep the essentials of food and shelter.

Now add up all of those bills.  Then add up all of your monthly income.  Compare the total of your bills to your income in a given month.  Are your bills more or less than your income?

If your bills are more than your income at this stage, don't get discouraged.  First, look at your bills and see if there are places you can make cuts.  Are there ways you could lower your utility bills?  Groceries?  Ways to make a secondary income?  Get a raise?  If renting, can you move to a less-expensive apartment, or find a roommate to share the costs?  Get creative.

When I was living alone and renting, heating was expensive, so I kept the heat low and wore more layers of clothing and used more blankets.  However, hot water was included in the rent.  I used to get some extra heating by running my shower water for periods of time on the hottest setting, and leaving the bathroom door open so the steam would filter through the apartment.  Not exactly something I'd recommend, but it was something creative that worked.


NOW ON TO YOUR SECONDARY BILLS:


List out other monthly expenses that are bills:
  • car insurance
  • health insurance
  • loans
  • cel phones
  • cable and internet, xbox live, netflix, hulu, etc.
  • medications
  • magazine subscription/s or book clubs, newspaper
  • gym memberships
  • childcare/daycare
  • etc. 
Add these all up.  Add your secondary bills total to your primary bills total.  Take another look at your income.  Are you paying more than what you're bringing in?  Even if you're not in the red, how much buffer room do you have?  It is wise to look into ways to cut some costs so you can achieve some of your goals such as savings for emergencies (medical, blown tire, ruined cel phone...), a dream vacation, retirement, etc.

Do you have car insurance on a vehicle that has been sitting in your driveway more days than it's been driven?  You can get a discount for that car.  If you want to be really gung-ho, sell that car.

Have a car that you're paying off?  Sell it and get a car that you can pay for in full, then take the savings you've gained from no car payments and put them into paying off a student loan or towards your next car that you'll also pay in full for. (Bonus: You'll find more negotiating power for lowering a car's price when you pay in full with cash).

Can you exercise at home versus the gym, such as by using the zoomba xbox game?

Have you looked into alternative cable companies with lower costs, or considered how many channels you don't even use?  Do you really need the latest cel phone or a full data plan?

Are there generic medications to the ones you are taking?  Can you arrange for a responsible college student to board in your spare room in exchange for being a nanny?

This may feel like pulling your own teeth, but once you let go of things you don't need and start realizing how many things you pay for that are based on wants, it's rather freeing.

Bonus: Here's 10 simple ways to cut down expenses.


ESSENTIAL SPENDING:
  • Car fuel and/or transportation fees (do the same as with groceries)

NON-ESSENTIAL SPENDING:

Include things such as going to the movie theater, Starbucks coffees, Redbox, restaurants, gifts, clothes, toys, tools, you got in the past month.


ADD EVERYTHING UP for your total expenses and make a game-plan for what areas you can improve on. For the next few months, keep tabs on your expenses/income ratios while you chip away at certain categories and make changes where you see fit, and you'll start to see what works and what doesn't, as well as gain a more concrete idea as to how you can put away money for your kid's college fund, or a vacation, or that you can splurge 2 times this week on a fruit smoothie.  Yum.

It IS possible to have a budget and make it work for you.  Have fun with it!

* If you'd like a great, free template for starting your budget, Dave Ramsey has a wonderful one here



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