Budgeting 101

If you do a quick Google search, you will absolutely find an abundance of articles and tips on how to budget. Saving money seems to be a huge topic in today’s economy. I’m here to tell you that despite the name of the article – there really aren’t any big secrets to budgeting. What we’re talking about here is just some basic common sense advice on how to manage your money.

When we can manage our money efficiently, we feel good, and the best way to feel good about our money is to ensure we have a strong, solid budget. This budget should be able to help you see where your money is coming in, and more importantly, where it’s going out.

When you sit down to start your budget, you’ll want to start by setting a goal. What do you want to achieve (a family vacation, new furniture, ensure the bills are paid on time?)

The second step is to record all the money you have coming in. This is the easy part! The next step, however, is a little more difficult. It may even take some of you a week to complete this step. You need to list every single penny that leaves your pocket in a month. This means everything from your bills to your daily coffee. Start by writing down everything that you can think of right now. If you need to, get your bank statements out to help you list anything you may have forgotten.

For the next week (or longer if you really need to), keep a pad of paper with you so that you can keep track of everything you spend. If you stop at the coffee shop on the way to work, write down the exact amount you spent. If you hand over $20.00 to your co-workers for a gift, write it down. I’ll bet that you’ll be surprised at how much you really do spend in a week!

Once you have the money listed, you can then start to identify the following things:

• Do I have enough money to cover the necessities as well as the luxuries? For our purposes here, a luxury is going to be anything beyond what you need to basically survive – your utilities, housing and food costs, car payments, transportation costs, etc.

• Where can I cut back on my expenses? Although you may not be able to do without your coffee every morning, if you are spending $2.50 per day on a cup of coffee, it does start to add up! If you only get coffee during the week, that’s $12.50 per week; $50.00 per month; $600 per year! What would you RATHER do with that $600?

• Identify your cash leaks. You’ll know a cash leak when you see it because your mouth will drop to the floor when you realize just how much money you are spending on a particular item.

There is no magic when it comes to budgeting. If you don’t have enough money coming in every month, there are only two options: cut expenses or increase incoming cash. Let’s consider a family who eats out once per month and spends $80.00 on the dinner (and that’s being conservative anymore!) That luxury costs this family $960.00 per year. If the parents from this family both spend $600 per year each on coffee, that brings our total luxury cost to $2160.00! If just one parent buys lunch every day, that increases our total by $2400.00 for a grand total of $4560 each and every year!

Now consider this: $4560.00 per year breaks down to $380.00 per month. That’s a small part-time job. That’s half a mortgage payment. That’s groceries paid for half a month.

Each person and family must judge for themselves what is important and necessary as well as what they are willing to give up in order to make their budget work.

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