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Make a Budget
- 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 – In 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 – This 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 – This 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?
Make Yourself Accountable
Everybody knows the reputation New Year’s resolutions get for being abandoned in under a month. Following through with your saving and budget goals can be difficult. There are thousands of strategies for keeping your resolutions, but I’ve found that the best goal-keeping mechanism is to make yourself accountable. There are several ways to accomplish this.
Make Firm Goals. If your goals are open to interpretation, it’s easy to interpret them in a way that lets you off the hook. Make the goals concrete and immune to interpretation, and that can’t happen. “Get up earlier” may mean five minutes, which is technically meeting the goal, but not really. “Get up at 5am” is clear and concrete.
Get a “Goal Buddy”. When I am out shopping, if I’m struck by the impulse to buy something I probably don’t need, I call my wife. She’s more than happy to encourage me to put the movie or game back on the shelf. I have a friend who will call me up if he’s thinking about buying a new gadget so I can talk him down. Friends don’t let friends mortgage their futures.
Go Public. As you may have noticed, I’m being as open as possible with my goals for the year. I have laid out clear goals and I provide fairly frequent updates through both this site and twitter. If I fail, I fail in front of an audience. That’s strong encouragement to succeed. Tell your family, friends and coworkers. Announce your goals on the internet. Make it as difficult as possible to fail gracefully.
Punish Yourself. I have a line item in my budget called “In the hole“. If I go over budget one month, the overage is entered as an expense the following month. This serves the double purpose of getting the budget back on track and forcing me to sacrifice something the next month to make that happen. Another option may be to write out a check to a charity you hate, and drop it in the mail if you miss your goal. Anything unpleasant can work as your punishment.
How do you keep your goals?
Getting Back on Track
Have you ever set a goal…and failed?
At some point, it happens to all of us. After all, our reach should exceed our grasp, right? That doesn’t make it easy to admit failure, or to correct it. Did you let a New Year’s resolution lapse, or slip off of a diet? Have you started shopping indiscriminately again, or stopped going to the gym?
It’s okay if you did, but it’s time to fix it.
How can you get back on track after failing a goal?
1. Pick a day to start over.
Just like when you first started towards your goal, you have to decide when you’re going to get back on board. If you can’t decide, just pick the beginning of the next month. A new beginning is a great time to tackle your new beginning.
2. Recommit.
You failed once. Accept it and move on. Past behaviors don’t have to be an indicator of future performance. Just do better this time.
3. Announce it.
Somebody has noticed that you aren’t on the wagon. Your coworkers are seeing you eating candy, or your spouse has noticed you buying things you don’t need. Talk to these people. Tell them you’re going to redo the things you’ve undone. You’ll change the world, but you have to start with yourself.
4. Don’t be ashamed of your lapse.
Unless I have seriously misjudged my audience, you are human. Humans sometimes make poor decisions. Being ashamed won’t help you, but take the opportunity to learn from the past. Do you know what caused you to fail? Are there triggers to your behavior that you can avoid this time around? When I quit smoking, I tried to avoid rush hour, because I smoked heavily while I drove and I wanted to avoid being in car for as long as possible, minimizing one of my triggers. What cause your lapse, and can you avoid it?
5. Don’t do it again.
This one should be the most obvious, but the fact that it’s a problem means it’s not. Do whatever it takes to not make the same mistakes and uphold your goals. Don’t smoke. Don’t eat garbage. Exercise more. Whatever you’ve decided to do or not do, do it….or not.
Have you missed a goal? How have you picked it back up?
5 Things to Do in the New Year
- Image via Wikipedia
CNN Money has an article up on 5 things to do this year. After posting a similar article a couple of weeks ago, I thought it’d be interesting to post about someone else’s perspective.
1. Shop for a no-fee checking account.
If you are paying fees for a checking account, go somewhere else. There are so many alternatives available that you shouldn’t be throwing money away. Ally Bank has a great no-fee checking account, as does INGDirect, though ING won’t let you write paper checks against the account. The same principle applies to credit cards. If you have a card with an annual fee and you aren’t getting some monster services or rewards to go with it, run away.
2. Save your raise.
I don’t necessarily agree with this one. If you are in debt, it’s better to use the raise to pay off that garbage, first. When I got my last raise, I immediately boosted the automatic payment for my car to use every new penny. I’ve never had the money available, so I haven’t missed it. Whatever you do, fight lifestyle inflation. Just because you have some more money doesn’t mean you need to spend it. At my last job, I got a substantial raise, so I bought a new car, only to get laid off a few months later.
3. Go for a checkup
Wealth doesn’t matter if you squander your health. Go get a physical. Every disease is easier to treat if you catch it earlier as opposed to later. Don’t make the mistake of running your body into the ground. You will regret it later. Effective this year, most health plans will cover a physical with no copay, co-insurance, or deductible allowed.
4. Score a better rewards card.
B***-****. If you’ve still got debt, don’t concentrate on using more of it. Get that crap paid off. If you’re out of debt, look into getting a rewards card that aligns with your goals. If you like to travel, get a card that gives you frequent flier miles. Otherwise, I’d go with a cash-back rewards card.
5. Use your vacation days.
37% of Americans don’t take all of the vacation to which they are entitled. That’s insane! We work harder and better when we have time to recuperate and relax. Unfortunately, I usually fall into that unfortunate 37%. My vacation resets on February 1st, and this will be the first year in a lot of years that I haven’t had to roll it over or even lose some.
What is your financial plan for the new year?
Tips to budget successfully
This is a guest post written by Andreas Nicolaides, a financial author for UK based MoneySupermarket.com.
Whether your aim is to save money for a special occasion or you just want to make sure you don’t have to struggle financially when it comes to the end of the month, a budget can be a saving grace. Budgets help us quickly and easily identify our total income and all our expenditure, allowing us to plan for the best and prepare for the worst financial situations.
Set yourself a target
If you have decided to set up a budget, then there must be a reason. Are you looking to save for an upcoming event? Or maybe you have realised that you are struggling to make your payments every month and you would like to feel more financially secure. Based on what you would like to get out of your budget, you should set yourself a specific, measurable objective.
My first objective I set for myself was to save $100 every month for a year. This sort of objective is easy to manage and easy to monitor and this is what we are trying to achieve. One important thing I would mention here is to ensure your objective is achievable; don’t set yourself a target that is too far out of your reach, being realistic is extremely important.
How do you set up your budget?
The main key thing when you start to put your budget together is to make sure you’re as honest as possible. Get yourself a pen and some paper and on one page detail all of your income. Include the obvious and also remember to include any benefits you are entitled too. Then grab another piece of paper and detail all of your monthly outgoings, remember to be honest and thorough and try not to forget anything. Once you have both figures, deduct your expenditure from your monthly income that will give you your monthly figure.
You have some extra cash?
If when you have your figure you realise that there is some cash left over, you can then decide what you want to do with it. My advice here depends on your own personal circumstances, for example if you have high levels of debt, your main aim should be tackle your high interest debt aggressively and as often as possible.
If you have some money left over and your aim is to save, then set up an interest bearing bank account. If you are based in the US then you could look to set up an LSA or lifetime savers account. In the UK we have the equivalent, that is called a cash ISA saving account.
No money left over?
If after working out your budget you find you have no money left over, then you need to do something about it. Debt is one of those things that won’t just disappear overnight; it’s something that takes time and commitment, but not giving up is paramount.
How to cut down your expenditures?
One of the main things you can do when you realise you are in a bad situation is to try and cut down on your expenditure. Here’s a couple of quick ways:
- Use price comparison sites – These sites are great to check and see if you are paying too much on your bills, and if you are, you will have a list of fantastic options available for you to choose from. This is a great way of saving money on things like your car insurance, see here.
- Sell unwanted items – Selling unwanted items is a quick way to making some cash, everyone has them around their home, so why not make use of them instead of letting them build up dust?
- Cut down on your spending – Try to avoid buying luxuries and try to stick to a specific shopping list when out doing the weekly food shop, this will help you avoid unnecessary purchases
A budget is used by many just to monitor what they spend month to month, but I hope I have detailed how it can be a helpful financial tool that can help you reach your financial goals. I hope my tips to budget successfully will help you get started on your way to financial freedom.
