Basic Budgeting Tips For Every Woman
From an article by JEREMY VOHWINKLE
Do you know why a budget is so important? On the surface it seems like creating a budget is just a tedious financial exercise, especially if you feel your finances are already in good order. But you might be surprised at just how valuable a budget can be. A good budget can help keep your spending on track and even uncover some hidden cash flow problems that might free up even more money to put toward your other financial goals.
A written, monthly budget allows you to plan for how you'll spend and/or save your money each month and also keep track of your spending patterns. Though making a budget may not sound like the most exciting activity (and for some, it's downright scary - ugh spreadsheets!), it's vital to keeping your financial house in order as budgets rely on balance. If you spend less in one area, you can spend more in another, or choose to save that money for a larger future purchase, building a "rainy day" fund, or even for retirement.
The hardest part of creating a budget is sitting down and creating one. (Sigh) It’s like staring at a blank piece of paper when you need to write something, and that first step seems like a massive hurdle. Don’t worry - the budget creation process is broken down below, into a few easy to follow steps. You’ll be able to sit down and create a basic budget in just a few minutes!
How to Make a Budget in 6 Simple Steps
1. Gather every financial statement you can.
This includes bank statements, investment accounts, recent utility bills, and any information regarding a source of income or expense. One of the keys in the budget-making process is to create a monthly average, so the more information you can dig up the better.
2. Record all of your sources of income.
If you are self-employed or have any outside sources of income, be sure to record these as well. If your income is in the form of a regular paycheck where taxes are automatically deducted, then using the net income (or take-home pay) amount is fine. Record this total income as a monthly amount.
3. Create a list of monthly expenses.
Write down a list of all the expected expenses you plan on incurring over the course of a month. This includes a mortgage payment, car payments, auto insurance, groceries, utilities, entertainment, dry cleaning, student loans, retirement or college savings — essentially everything you spend money on.
4. Break expenses into two categories: fixed and variable.
Fixed expenses are those that stay relatively the same each month and are required parts of your way of living. They included expenses such as your mortgage or rent, car payments, cable and/or internet service, trash pickup, credit card payments and so on. These expenses, for the most part, are essential yet not likely to change in the budget. Variable expenses are the type that will change from month to month and include items such as groceries, gasoline, entertainment, eating out, and gifts, to name a few. This category will be important when making adjustments.
5. Total your monthly income and monthly expenses.
If your end result shows more income than expenses, you are off to a good start. This means you can prioritize this excess to areas of your budget such as retirement savings or paying more on credit card balances to eliminate that debt faster. If you are showing a higher expense column than income, it means some changes will have to be made.
6. Make adjustments to expenses.
If you have accurately identified and listed all of your expenses, the ultimate goal would be to have your income and expense columns to be equal. This means all of your income is accounted for and budgeted for a specific expense or savings goal.
If you're in a situation where expenses are higher than income, you should look at your variable expenses to find areas to cut. Since these expenses are typically non-essential, it should be easy to shave a few dollars in a few areas to bring you closer to your income.
Budget done. What’s next?…
Review Your Budget Monthly
It's important to review your budget on a regular basis to make sure you're staying on track. After the first month take a minute to sit down and compare the actual expenses versus what you had created in the budget. This will show you where you did well and where you may need to improve.
Once you've taken the time to create a budget, now it’s time to make sure you follow it. Budgeting can be like going on a diet — you start with good intentions, but after a few weeks or months you drift away from your plan. Don’t let that happen to you. Here are a few basic traits that will ensure budgeting success.
If you’re having difficulty coming up with all of the various expense categories for your budget, Use this budget worksheet that can help you organize everything. This worksheet has the most common expenses and can help you keep track of everything in an orderly fashion.
Overspending breaks your budget.
The main reason to create a budget is to help you keep your finances under control by keeping track of how much money you’re spending and where it goes. When you begin to stray from your budget, it’s usually because of spending too much money somewhere. But if you have a budget that tells you exactly how much you’re supposed to spend, why is it so easy to overspend? There are a number of reasons we overspend, so when you understand what causes overspending, you can help put a stop to it and keep your budget on track.
Outline your savings goals and find the best resources.
If you're going to save money, having a specific goal to work towards can be a huge help in maintaining your momentum. Think about what you want to accomplish with saving, both in the short- and long-term. For example, you may want to save money for a vacation in the next six months. Or, you may be planning to buy a home in the next year and need to save a down payment. Consider what you'd like to achieve with your money, then break your goals down into specific, actionable steps. Set a timeline for achieving each goal and track your progress to stay motivated on your savings journey.
Saving money becomes less of a struggle when you have the right tools on hand. A budgeting app like Mint, for example, can help you manage your budget on the go and track spending automatically. The app allows you to sync all of your bank and credit accounts in a single place so you can see how well you're doing with your savings goals at a glance. Choosing the right place to keep your savings is also important. A high-interest savings account, for example, may be convenient for stashing your emergency fund. An IRA or an IRA CD, on the other hand, are great vehicles for setting aside money long-term for your retirement.
Automate your savings.
Sometimes, remembering to save can be a struggle. Automating your savings is an easy way to stay on track with your savings plan. Schedule automatic transfers from your checking account to your savings to build your emergency fund. Open an individual retirement account and set up automatic contributions every payday to build your nest egg. You can also use automatic contributions to fund a 529 college savings account for your child's education. Automating deposits into different accounts ensures that you're saving instead of spending and over time, the power of compound interest can help your money grow steadily.
Cash is queen!
Using cash for most purchases helps to curb spending & wrecking your budget
Swiping plastic has become incredibly easy. With both credit cards and debit cards, we can be in and out with a purchase in a matter of seconds. Unfortunately, this convenience comes at a cost. By using plastic, we can begin to lose track of how much money is being spent. Sure, two dollars here, 4 dollars there, it doesn’t seem like much at the time of purchase, but if you aren’t careful, they can add up and bust your budget. One trick to help keep your daily spending under control is to use cash instead of your credit or debit cards. It might not be as fast, but it helps you visualize just how much money you’re spending.
For a list of the 8 best budgeting apps, click here.