21 April 2012

Budgeting & Savings Basics

It's hard to swallow some times, the word budget does not sit well with some people. If you are making good money and meeting your basic needs, why not just spend whatever you'd like? Life is short, right?

Kind of.

Yes, life here on Earth is short, but blowing all your money on a cool new car does not make it easier. And, not much fun if you have no money for gas! So why not save up for that hot rod AND gas to drive it around! You can have both.

I am of the financial conservative bunch. My money is important as a tool for living healthy, meaningfully and within limits. While I want to spend my money selfishly some times, it is not always in my best interest to do so (yet, those shoes are so cute!).

Coming from a background in economics, I understand the value of a good credit rating, your earning vs. savings ratio and the necessity of saving now. I doubt that many in my generation see that value. I know plenty of awesome women who live on graduate student budgets and lower paying jobs who do great, but in general I find these people too far in between.

From what I see in my own life, media and hoards of stories about people filing for bankruptcy I think there is not enough attention paid to the benefits of good, sound personal finances. No matter your job or stage in life there are endless ways to budget and save money. I will share a few of the tricks and benefits of saving & budgeting I use in my daily life.

*Note: I am not a certified financial planner. I offer this post as friendly ideas. Take it or leave it. This information is not meant to serve as financial services from a certified planner. If you have concerns or want to talk to a professional, contact a certified financial planner or accountant.

  • Start a budget. 
 Ok. Maybe this point is too obvious for some but it's a good reminder. I will be the first to admit before I really sat down and studied financial statements I didn't know this was the way to go. I kind of always kept track but never paid much attention to budget limits. It wasn't until my husband (back when he was my boyfriend) and I had a talk about this point did I realize I needed a budget. Life gets a little crazy, a budget helps you keep track.

We use Microsoft Excel. It came with our computers and does the job for free. I suggest making a template to use each month so you have some consistency. If you have an on-line banking account which keeps track of your credit/debit receipts that is also a helpful tool. I have used Mint.com in the past as well (if you have multiple accounts, Mint can access them all at the same time! phew!).

  • Keep it easy.
In starting a budget you can get ahead of yourself easily. There are hundreds of categories you could make or fancy equations to make your bottom line look better. Take time to think about the things you absolutely need to budget for, and what things you don't need to include. For instance, we try not to get too particular with "home things". We have a general category on our budget for home things; which has included repairs, a new backyard table and even fabric for curtains before.

Letting your budget outline the most important bills and obligations keeps it from seeming like an overwhelming, tedious task. If you know when or the exact amount of some items (like rent or mortgage for instance) you can use a template with those cost already entered, making the budget easier to use for forecasting.

  • Make an "guesstimate" of your expenses and savings.
If you are just starting a budget perhaps one of the reasons is because you feel like you are spending too much in some areas and not enough in others. A budget is a great place to set goals or limits for your spending.

If you want to start saving more, make a column for that too. Many financial professionals will tell you that having only one savings account is not optimal. In order to save, its best to have multiple savings for various items. Some banks have this option for free, others charge a fee. In order to negate any extra cost of saving our money, we employ a "bucket" system. We take out of our spending allowance any amount we want to save and put it in a corresponding "bucket" (aka-a cell in Excel). So when we go to pay bills or eat out, we are only using money we actually have for that expense. It can sound confusing but when you get the hang of it, it works. 

If you have a rough idea of what you would like to spend in a certain area then setting aside a column labeled "estimated" next to an "actual" column you can easily see where you can save money. When we are feeling like the budget is too tight, we use the actual cost column to find where we could cut out some expenses.

  • Use your budget each month (or week or day).
Using your budget for your needs is equally important as getting started. My husband and I work off a monthly budget as I get paid every month and allowance for his graduate school can easily be divided amongst months. Try making a budget for a couple of time periods and see what works best.

At the end of the month, my husband and I sit down and enter all our credits and debts. With a few of the debts already entered on a template, we just plug in the miscellaneous debts from the month's expenses. For us this process is a good routine that doesn't take much time.

  • Check with your budget before (insert buying objective here).
One of the best things about being financial savvy is ability to have more purchasing power. For instance, if you want to budget for a new car for several months (or years) when you can allow the budgeted saving line for the car increasing to a point where you feel comfortable making the purchase. And boy, does that feel good. I don't think there is anything better then knowing you saved, budgeted and gave up other wants to accomplish a need. That is financial freedom.

Reviewing your budget before a large purchase can make you understand where the money is coming from and how it is going to affect you. There is a lot of stress taken off a decision if one of the bottom line factors is how much you will be negatively affected by the decision.  

  • Keep the budget personal.
No matter how you set a budget up, just keep it personal. Make it easy for yourself or someone else to use or read. You will be more prone to use a budget that fits your specific needs.

I hope that everyone can find financial freedom in their lives. By making sound decisions and keeping track of your money, budget can be a friendly tool. Don't be afraid of the "b" word!

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