Developing Your Budget
My Simple Budget Week is here! Day 2!
Budgeting isn’t a term that we like to use. I know when I think about budgets sometimes I get heart palpitations. It can make me feel bad, like somehow because I have to budget I am not going to measure up to my peers. But I am here to tell you that budgeting and being frugal can be sexy, fun and challenging! Just by spending a little bit of time and putting a little thought into our finances we can change our lives for the better, do more and have more.
The first step in budgeting is developing a budget.
This may not be the hardest part of the process, but it can be the most time intensive. Don't skimp on this part. Developing a budget is the foundation of budgeting and the more effort you put in now, the better off you will be in the long run. Yes, you can start at the first of the month and decide that you are going to spend 'X' amount of dollars in a certain area, but how realistic is that? For some it is. For others, not so much.
For me, in order to develop and realistic budget that I can stick to I need to do 2 things.
First, I need to have an end goal. Whether that is money in a savings account, saving up for a vacation, having my emergency savings fund padded, my end goal helps me to have something to reach for. Within this end goal, set 'mid-goals'. Have a goal for 3, 6, 9, 12 months and work towards achieving it!
Second, I look at my past spending in certain areas. The easiest way for me to do that is to use a program that consolidates all my finances and transactions into one location. A great free program is Mint.com by Intuit. Mint categories your transactions. If you have never used Mint before, just click here and follow the steps to create an account and upload your financial transactions. Once all of your transactions are loaded you can easily look at what you have spent in each area or category. Use this information to help develop your budget. (Disclaimer it does not take into consideration any cash spending.)
Now let’s be clear, with budgeting also come frugality, the need to be frugal, frugal living? Anyway, you can have a budget but if you aren’t saving money each month you are doing yourself a disservice. It is so important to live for the future because you never know what is going to happen. So when developing your budget and looking back on past transactions, try cutting your spending in areas that you have influence on by 10-20% (if you can do more do more, but don’t push yourself too much).
So what does that mean? Areas that you have influence on? Well let’s go through it a bit. There are areas that we don't have control over how much we spend. These are the things we NEED to spend money on each month in order to sustain us. For example: rent/mortgage we can’t change. Utilities like cell phone bills and cable/internet/phone typically stay the same each month, plus/minus taxes. Gas and Electric might fluctuate a bit depending on the time of year, but you can have a pretty good idea of what those are going to cost. These items are in the “Must Pay For” category and we can’t really change them a whole lot.
Areas we can change and have influence over however, these are the areas where by cutting back just a little we can save a lot!
Areas we can change and have influence over however, these are the areas where by cutting back just a little we can save a lot! Eating out, going to the movies, lattes from Starbucks, all of the items we buy from Target that we are think we have to have at the time of purchase but never intended on buying (Target amnesia anyone?), even grocery’s! We all have areas in our life where we spend needlessly or without too much thought. These items, though necessary like grocery’s are in the area of our budget that we have influence on. This is the area that, when developing a budget, we should try and cut by 10-20%.
If you can cut your influence category by 10-20% and stick that amount into a savings account every month instead before you know it you will have money to spare that you didn’t realize you had!
That’s it for now, I have to go start developing my own budget that I get to stick to for the year! If you have any questions, leave them in the comments below!