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Make a Budget

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Image by r.lovewell via Flickr

In the past, I’ve gone through a detailed series of budget lessons demonstrating how to make a budget and showing my personal budget spreadsheet template.¬† If you weren’t here to see them develop, you probably haven’t seen them at all.¬†¬†¬† I’ve never built an actual index for those posts.

This is the master index of my budget planning resources.  As I develop more, this will grow.

Budget Lesson #1 РIn this lesson, I go over how we handle discretionary income and I explain our modified envelope system.   The discretionary budget contains things like our grocery bill, or the clothes we buy.  We have near-total discretion over what is purchased, hence the name.

Budget Lesson #2 – Lesson #2 contains the details of our monthly bills.¬† These are the ones that are consistent, predictable, and actually due each month.¬† Most people take these for granted as the bills they have to pay, but it’s not true.¬†¬† You can get almost all of your regular bills reduced just by asking.¬†¬† You would also be surprised what you can do without, when properly motivated.

Budget Lesson #3 – This is where I explain how we deal with the non-monthly bills.¬† That is, the bills that have to be paid, but are not due on a monthly basis.¬† I also share the personal budget spreadsheet template I developed.¬†¬† I am working on a few sample templates to match various imaginary scenarios.¬† If you’d like to be an anonymous case study, and get free help setting up a budget, let me know, please.

Budget Lesson #4 – In this lesson, I describe our “set-aside” funds for things that will need to be paid eventually, but not on a set schedule.¬† Sometimes, they are never actually due.¬†¬† We set aside money for the parties we throw, for car repairs and for a number of other things.¬† A few of these items are outright optional, but they are part of what makes life fun.¬† You can’t make a budget without including some of the extras.

Budget Lesson #5 – This is the companion piece to lesson 2.¬†¬† Learn how I’ve reduced–or attempted to reduce–each of these bills.¬†¬† For the better part of two years, I called Dish Network every few months to ask for a discount.¬† For almost 2 years, it was granted.¬† Then one, day, they told me they were putting a note on our account to keep us from getting any more discounts, so I canceled.¬†¬† 100% discounts help us save more.

Budget Lesson #6 РThis is the reduction companion to lesson 3.  These bills are harder to reduce.  Have you ever successfully gotten your property taxes lowered?

Budget Lesson #7 РThis is the reduction companion to lesson 4.  Notice a pattern, yet?

Budget Lesson #8 – Here, completely out of order, is the reduction companion to lesson 1.¬†¬† Watch as I magically reduce–or rationalize–our discretionary budget.

So, dear readers, what part of budgeting should I address next?

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Budget Lesson, Part 8

This is a continuation of the budget series. See these posts for the history of this series.

This time, I’m looking at our discretionary budget. These are the things that don’t have a fixed cost. Any individual item is largely optional, and, ultimately, we don’t track these purchases closely. At the beginning of the month, I pull this money out of the bank in cash, except for 1 category. When the discretionary budget is gone, it’s gone.

  • Groceries/Dining¬† – At the beginning of the week, we sit down with a meal planner and (Can you guess?) plan our meals.¬† The planner we use has a weekly calendar with a checklist below each day to build the grocery list.¬† At the bottom of the page is another checklist for staples that don’t apply to a specific day’s meal, like milk or snacks.¬†¬† We build the list, then transfer it to another sheet, broken out by grocery department.¬† That keeps me from having to criss-cross the store.¬†¬† I make one lap.¬† When I go to the store, I only bring that week’s grocery budget in cash,¬† so I keep close track of how much is going into the cart.¬†¬†¬† Recently, we’ve gotten so good at making our meals cheaply from scratch that I reduced our monthly food budget by $50.¬†¬† I enjoy good food, so I wouldn’t reduce this budget item if it was a sacrifice in quality.¬†¬† For example, the Rainbow Foods store-brand chips actually taste better than Lay’s for half of the price.¬†¬†¬† We stock up when things are on sale and cook creatively. ¬† Sometimes, if time has been too tight to make a meal plan, we eat solely from the pantry for a week, buying nothing but bread and milk. ¬† By sticking to the list, and not fearing the store’s brand, we are able to feed our family of 5 1/2 for $450 per month and still eat well.
  • Discretionary¬† – This is for the random things that come up, and some of the not-so-random.¬†¬† Toiletries, activity fees, admissions, and fund-raisers all come out of this fund.¬† At the end of the month, whatever is left gets tucked into a box and forgotten.¬†¬† When the box gets full, it goes to the bank to be applied to debt. There isn’t a lot to cut here, since this line-item is only $200.
  • Baby stuff¬† – This category is continually shrinking.¬†¬† Our middle kid is recently potty-trained and our youngest is trying.¬†¬† There is no baby food and no formula, just 1 pack of diapers every month.¬†¬† In 6 months, this category will be eliminated.
  • Gas/oil¬† – This is the single category that isn’t cash-based.¬†¬† It makes no sense to take the kids out of the car to pay inside, especially in the winter.¬†¬†¬† Also, all of the temptation is inside. It’s much better to spend the money at the pump.¬†¬†¬† There isn’t much we can do to reduce this, at the moment.¬†¬† Our next car won’t be a full-sized pickup, but we are several years from that purchase.¬†¬†¬† We’ve started clipping oil-change coupons to keep this down to the minimum amount possible.
  • Clothes¬† – We only allocate $15 per month for clothes.¬†¬† In a good month, we don’t spend it.¬†¬† We can’t eliminate it completely, because things do come up.¬†¬† Over the summer, I’m hoping to completely leave it alone to save up for a new(used) winter jacket for our older daughter, who doesn’t get hand-me-downs.
  • Blow Money¬† – This is the safety valve.¬† It can’t get reduced and still work.

We’ve now addressed out entire budget, including what we can do and have done to keep our costs under control.¬† Looking back, I don’t see too many cuts I’ve missed.

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Budgeting tips ‚Äď sticking to your budget

Image by adriagarcia at Flickr.com

Image by adriagarcia at Flickr.com

If you are looking to get out of debt, or you are currently debt-free and want to stay that way, then it is important that you get a grip of  your financial situation and live within your means.

A good way to do this is to create a budget as this gives you a clear indication of  how much money is coming in, how much is going out and also highlights any areas where you may need to make cut backs should you be falling short each month.

Once you have sorted out the figures and made necessary amendments, for example paying bills by direct debit in order to make savings or cutting existing debts by carrying out a balance transfer to a lower rate credit card, it is time to start focussing on the lifestyle changes.

As you will find, it is one thing to create a budget and quite another to stick to it, but by adhering to the following   steps and exercising a certain amount of will power, you should be able to ensure that you live within your means and resist the urge to reach for that credit card.

Keep focussed

Before you start to look at how you can stick to your budget you need to clarify why you need to stick to your budget!

A budget can initially seem like something that has been devised with the sole intention of stopping you having fun and buying or doing the things that you want. So it is important to remember that, though some cutbacks may be necessary in the short term, a budget is a long-term strategy that will allow you to take control of your finances and, all being well, live a happy life that is free from the worry of excessive debt.

Change your habits

Unfortunately, a successful budget can require a change in lifestyle and this can be one of the most difficult things to adhere to.

For example, if you have previously enjoyed eating out regularly then you may have to make cut backs in this area to ensure that you are living within your means. But, instead of seeing this as a negative, try to focus on the positives and remember the reasons why you are budgeting.

And a change in habits doesn’t necessarily mean that you have to cut back on your enjoyment of life and it may actually open your eyes to other pursuits you may not have previously considered.

For example, instead of eating out try preparing a meal at home and turn your dining room into a restaurant. This means that you can still have the fine dining experience but at a fraction of the price and without the worry of making a reservation!

Shop smarter

Lists figure heavily when creating a personal budget and list-making is a habit that you should get used to when trying to stick to your budget.

When budgeting it is vitally important to avoid impulse buying and a great way to do this is to always make a list of things you need before you go shopping.

This means that you will have a clear idea of what you need and you will be less inclined to make random purchases that may just turn out to be an unnecessary drain on your finances. It’s also worth mentioning at this point that you should always differentiate and prioritise the things you need over the things you simply want.

If you are unsure how to make the distinction then put off making the purchase for a couple of days and then reconsider if you actually need it. This cooling off period will often convince you that you can do without it and save you money.

In addition, savings can be made on your shopping by simply swapping big name brands for supermarket own varieties, using discount coupons and looking for any special offers.

Overall, it is important to be fully focussed and committed to your budget plan and to be aware that a change in finances may require a change in lifestyle. But a few short term changes may well add up to better finances in the long term.

Article written by Les Roberts, budget reporter at Moneysupermarket.com.

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Budget Lesson, Part 4

Part 4 of the Budget Lesson series.  Please see Part 1, Part 2, and Part 3 to catch up.  The Google Doc of this example is here.

The final category in my budget is “Set-aside funds”.¬† These are the categories that don’t have specific payout amounts and happen at irregular intervals.¬† When my car is paid off, there will be a car fund added to the list, instead of a new car payment.

  • Parties –¬† We throw two parties each year; a Halloween party and a summer barbecue.¬† We also have three children who have varying expectations and needs for their birthday parties.
  • Gifts I don’t buy presents for my friends, and the number of relatives I buy gifts for has decreased dramatically over the years.¬† I do, however, buy birthday and Christmas presents for my wife and kids and I participate in some form of gift exchange with my brothers and their wives.¬† Combined, we set aside about $100 per month for parties and presents.
  • Pet Care – We have four cats and a dog.¬† This is to cover cat litter and food the bunch.¬† We have too many pets, but we can’t give them away.¬† They are family.¬† However, there is a moratorium on new animals for a few years.¬†¬† Two cats and a dog are our hard limit.
  • Car Repair – Cars break.¬† Tires wear out.¬† This isn’t a surprise, and it certainly isn’t an emergency.
  • Warranty Fund – We are building up our own “Warranty Fund“, to replace appliances when they break.¬† I’d rather have the interest accruing than see this as a line-item fee on any of my bills.
  • Medicine/Medical – Kids get sick and prescriptions need to be filled.¬† We figure our monthly prescriptions plus one office visit per month, but the money accrues in this fund.¬† On low months, we have more, so we can cover the visits during flu season.
  • In The Hole – This isn’t actually a fund we set aside.¬† If, for some reason, we go over budget one month, it gets entered here to immediately pay ourselves back for the over-spend.¬† This month, this number is $170, which is how high we went over for Christmas.¬† Since we have all of the “Set asides” and non-monthly bills stored in the same account, there was no actual debt, just this “paper” debt to ourselves.¬† This serves the combined purposes of a mild punishment for overspending and a method to get back on track.

That is my entire budget laid out.¬†¬† As the series continues, I’ll be examining how I have lowered the bills, how I could lower them more, and how I’ve screwed them up.

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