Getting started with a Personal or Family Budget Plan
Why Budget?
Budgeting to Meet Goals
As with most things in life, it is best to define the problem before attempting to develop a solution. A budget may sound tedious, boring, and restrictive. It is far from that. We budget because we want certain things in our lives. We are saving for a new car, a new home, or to build up a safety net. Or we budget because we definitely don't want other things such as bankruptcy, foreclosure, debt. So, don't think of a budget as something to deny you the things you want, but rather think of it as the tool that enables you to get the things you want! A budget is an enabling tool, not a limiting tool.
Budgeting and Communication
A budget is so important as a communication tool for a family. Once agreed upon, it will prevent many a heated discussion over finances and purchases, which is one of the leading causes of divorce today. Where you used to have to discuss every purchase, not you just say "Check The Budget" when a decision is necessary to purchase some item. If there is not enough money in the budget, the decision is made without all the emotion.
There are three things you need to do to get started:
- One of the first steps to get started budgeting is tracking your current spending. Check The Budget is a great place to do this. All you have to do is start entering transactions. As you enter your transactions, you can assign the money to the appropriate budget category. After a month or two, you will have a good idea about how much you are spending in each budget category. From that point, you can begin to adjust your spending in these categories to better reflect your plans, values, and goals.
- One of the most important functions of a budget is to enable you to plan for expenses that come up once a year. This would include items like insurance, Christmas savings, taxes, etc. Look back through your checkbook and see what items you need to be planning to save for. Then add them all up and divide by 12 to see what you need to save each month to meet these obligations.
- Most importantly, define the goals you wish to accomplish. Setting and achieving your goals is what makes budgeting exciting.
Here are some suggested goals:
- get out of debt
- prevent going into debt (establish emergency savings cushion)
- savings goal
- retirement
- college
- emergency
- car
- house
- giving
How to meet your financial goals more quickly.
What you are willing and able to do more quickly depends on how desperately you want or need to meet your goals. If you are struggling to pay your bills, making minimum payments on debt, etc, you will be motivated to make drastic changes to bring your plans in line with your goals. If you are just trying to save up to make some purchase, you might only be willing to make minor changes. For each situation, I'll cover a drastic and a moderate thing you can do for each of the typical budget categories:
| Typical % |
Category |
Drastic Ideas |
Moderate Ideas |
| 100% |
Income |
- Look for a new higher paying job
|
- Ask for a raise
- sell items on ebay
- pick up a second job
|
| 34% |
Housing |
- Move to something more affordable
- Cancel cable
- Cancel cell phone
- Cancel land line
- Get Skype
|
- Drop your mortgage insurance if 20% equity
- Perform maintenance yourself (lawn care / repairs)
- Moving closer to work can save up to 0.50/mile
- Adjust thermostat of air conditioner and hot water heater or turn them off
- Turn off lights
- Installfluorescent bulbs
- Quit watering the yard
|
| 19% |
Automotive |
- If you are paying a note, trade your financed car for something used that can be paid off rapidly if possible.
- Sell your car and take public transportation
|
- Carpool
- Avoid unnecessary trips
- Air up tires
|
| 12% |
Food |
- Maybe you need to shed a few pounds anyway... :)
- Dine in not out
|
- Ad match and plan meals around loss leader sales ads
- Brown bag lunch
- Avoid snack machines
|
| 5% |
Entertainment |
|
- You don't have to spend money to be entertained
- Don't go to movies, Netflix!
- Go to library (free movies, audio cd's, etc.)
- Keep local free entertainment websites bookmarked
|
| ???% |
Vices |
- Quit Smoking
- Quit Drinking
- Quit Starbucks
|
- Quitting a vice is always drastic! :)
|
| 4% |
Clothing |
- You don't have to have the latest fashion or namebrand; If you do, it is surprising what is at the thrift shop;
- Buy your clothes at a discount superstore rather than an expensive mall store.
|
|
| ?% |
Insurance |
- Drop to liability on autos that are no longer worth much
- Increase deductibles
|
- Review / Get quotes annually and change policies if a better deal is found
|
| ?% |
Debt |
|
- Snowball your debt (pay lowest balance off first while making minimum payments on other debts)
|
|
