Get ready because I am about to talk about that dreaded, vial, hated, word. "Budget"
Have you ever gone to the ATM to get cash, and after reading your receipt, find yourself wondering, “Have I been robbed?” Most likely, we have all been there a time or two. Somehow our money just seems to dwindle when we don’t track our spending. Our next step in building wealth, therefore, is setting, and sticking with, a budget.
Creating a budget is as easy as looking at your income versus your expenses, determining spending and saving goals, and making a plan on how to reach those goals. In order to set a budget that you can live with, you will need to set realistic goals by first monitoring your actual spending over a fixed period, (a month or two works best) and getting an understanding of where your money is going. Keep a daily journal of each purchase you make, or bill you pay and categorize these expenditures.
Once you have a good grasp of your monthly outgo, it’s time to measure it against your income. At this point, you can get a good idea of your financial health and set your priorities and goals. A good basic budget consists of five categories; fixed expenses (mortgage, car payment, etc.), variable expenses (utilities, cell phone etc.), savings (try for at least 10% of your take home pay), a contingency fund (for unexpected/higher than expected expenses, say 10% of your take home), and spending money (entertainment, clothing, groceries, toiletries, etc). If you are spending more than you bring in, including setting aside money for saving and emergencies, then it’s time to look at expenses you can cut back on. Now write down your spending categories, and the amount you are allotting for each. Set reasonable goals for yourself and keep it simple. Budgeting is about being cognizant of your money, not about depriving yourself.
Now that you have created your budget, stick with it! No budget, regardless of how well thought out, works unless you stick to it. Here are a few tricks to help you stay on track:
- Pull the cash that you intend to spend for the week, out in one transaction. No return trips to the ATM to pull out additional funds. When the money you withdraw is gone, you are done spending for the week, period.
- Use the envelope system. Put the cash you are allotting for your variable spending categories such as dining out, clothing, and entertainment, in separate envelopes at the beginning of the week. Spend only what is in each envelope. If you do happen to overspend in one category, you must adjust another envelope to maintain your weekly budget.
- Leave your debit or credit card at home when you shop. Bring the only cash you intend to spend. You will buy less when it is your hard earned cash you are turning over .
- Review and adjust your budget as needed. Budgets can only work if you set reasonable expectations and make changes when necessary.
- Make use of budgeting tools. There are several websites that will help you set up and monitor your budget, Budgetpulse.com and Mint.com to name a few. There is also Quicken, an excellent software program for tracking spending and paying bills, as well balancing your checkbook.
It's a Good Life!!!
Greg Novak MBA
NMLS # 329079
Vice President / Partner
Office - 386-756-8228
Cell - 386-846-6686
Fax - 386-756-8108
Website - www.AmericanMortgageNow.com
Oh, by the way, If you know someone who is thinking about buying or refinancing a home, please give me a call with their name and number, I will be happy to follow up with them for you.
FLORIDA- American Mortgage Loan Services, Inc. - NMLS Company ID 330596
The information above is pretty universal and widely discussed by most financial people, however, I have been using information for this series from the book The Millionaire Next Door: Surprising Secrets of America’s Wealthy.