Budgeting Tips

So, you’ve decided to create a budget, but how do you get started?  The first step is to determine your monthly income.  This is fairly easy for those of us with a salary.  It’s more difficult for independent contractors and the self-employed, whose income typically fluctuates from month to month.  If you are self-employed, you may want to take a look at last year’s tax return and use the gross income for the year, divided by twelve, as a starting point for monthly income.  However, don’t forget to account for taxes.

Expenses

The best way to get an understanding of your expenses is to record every expenditure you make for an entire month.  Not only will it make you more aware of where your money goes, but it will also make you think twice before buying something you may not need.  Once you have a month’s worth of expenditures, you can put a pencil to the information you have gathered and start roughing out a budget.  Don’t be hard on yourself, when you see where your money is going, you most likely will experience remorse.  While you may have made mistakes in the past, keep a positive attitude. You are starting on a new path, a path towards taking control of your money.  Remember, the budget needs to be flexible.  It probably won’t be perfect at first, but you can make adjustments to it as you start living by the initial guide you created.

Sticking with a Budget

Here are some tips to make it easier to stick with your budget.

  • Plan for some “fun” money;  money that you can use as you wish for going to the movies or dining out or having a massage or whatever you consider to be fun.  Make an allowance in your budget for funds that you can spend however you wish without accounting for how you spend it.
  • Many of us have a sense of entitlement, we feel like we deserve certain things, a big house, nice clothes, etc.  I tend to fall in that category, I work a lot of hours and feel like I deserve to have nice clothes, they are part of my job…right?  Yes and no, I need nice clothes for work, but I also don’t have to break the bank account trying to put together a professional wardrobe.
  • Divert a part of your paycheck directly to your savings account, money not seen isn’t spent.  Or consider increasing your contribution to your 401(k) plan; again, these funds are not available and are going to your retirement savings, tax free.
  • You may want to try to abstain from spending, try not to spend any money for just one day.  Plan for the day in advance, so your gas tank isn’t on empty or your pantry bare.  Maybe the next month you could try for two days free from spending.
  • Take your lunch to work.  Not only will you save money, but calories as well!
  • If you have credit card debt, make sure you pay at least the minimum payment and don’t use the cards! More on credit card debt in future posts.
  • Enroll in a Dave Ramsey “Financial Peace University” course.  I took one about 4 years ago, very informative.  If you can’t take the course, read one of Dave’s books.  http://www.daveramsey.com

Budgeting, like dieting, going to college, or any other positive endeavor, is difficult, but the results are well worth the hard work.

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