Financial Management Tip Day 8: Do you know where to start in creating a budget?

Financial Management Tip Day 8: Do you know where to start in creating a budget?

I know many people see the word “budget” as a bad word but it really doesn’t have to be nor is it complicated or complex. I am a believer that the key is to start and you will work out the kinks in the plan as you go. The first month might be a little messy so it is important to keep notes, write down questions and any possible issues you encounter along the way.

Look at it carefully and frequently. Are you missing a category? Did you spend money this month that you couldn’t account for on your budget? Did you over spend in a category- why and is there a way to better control your spending or do you need to increase the budgeted amount for this category?

Budgeting is really about looking at the reality –money in and money out and making choices about your priorities. Be realistic.

Steps for beginning your budget:

  1. Get Organized– Gather your spending journal information, bank and credit card statements, gather current copies of your bills *for variable costs like your power bill you might want to look at 6 months of previous bills to discover your high and low points or an average, your pay stubs, and your debt statements.
  2. Be Exact– Do Not, I repeat Do Not use estimates! Write down the actual numbers down to the penny.
  3. Format– Start with a form you can find online or make your own. You can do it all on the computer or paper and pen. I like to print off a form that I fill out throughout the month by hand. I keep past month’s budgets to go back over and review. It let’s me compare from month to month.
  4. Don’t forget to Include Savings– Don’t forget these important categories. For example, if you start early, your retirement savings will cost you less per month. Do you want to stop renting and would rather own your own house, start saving for a house down-payment. Emergencies are bound to happen, unless you start an emergency fund, you will rely on credit during these difficult times.
  5. Remember Debt Repayment– Many of us have debt repayment in our life’s and this may range from student loans, mortgage, car payments, credit cards, loans from family or friends, line of credit, payday advance stores, past due amounts on bills, or items bought on buy now pay later plan. Start with a list of all your debts (who do you owe, what is your total amount owed, monthly minimum amounts, and interest rates)- we will look at debt repayment more closely this week.
  6. Try a 3 Column Approach– I like to use a three column approach to my budget sheet.                                                                                                                            1. Budgeted Monthly Amount– What I have budgeted for spending in each category                                                                                                                         2. Monthly Actual Amount– How much did we actually spend this month in each category                                                                                                                           3. Difference– Did we over or under spend?

I am going to provide a blank budget page that you can use for your family (edit the cells to work for you and your family’s needs- add categories that are relevant for you). I like lots of categories- be specific. For example, you might need to add some categories for kids or planned spending such as vacations. Blank Budget Sheet

Here is a Sample Budget Sheet for you to check out. Is this person missing categories? Think about next steps? Is this person saving enough? What about increasing payments on their debts? Why is there budgeted amounts this month that were not spent- where does this money go etc?

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Financial Management Tip 7: Understanding your Fixed and Variable Expenses

Financial Management Tip 7: Understanding your Fixed and Variable Expenses

There are two distinct parts of everyone’s budget are 1. Fixed Expenses and 2. Variable Expenses 

1. Fixed Expenses: Cost the same month to month such as your mortgage or rent payment, car or house insurance (if paid monthly). These typically can not be easily changed. These are easy to track within your budget.

However, if you were in a financial crunch you might be able to change your mortgage payment by re-financing or renting out a room or basement for extra income. If you rent you could move to a cheaper apartment or get an extra room-mate.

You can shop around for cheaper car, house, and life insurance- do your research and look for discounts.

Fixed doesn’t mean set in stone, however, in general the costs are pre-determined on a monthly basis and there isn’t a lot of flexibility with these bills. Look at reducing these costs in order to

**Cell phone bills and cable bills are somewhat fixed – Do you consistently spend over your allotted minutes every month or order a movie on the tv? If so maybe look at a new contract/plan that better meets your needs and allows you to budget an appropriate amount.

2. Variable Expenses: These costs vary from month to month and are under your control. You decide what to spend on food, eating out, entertainment, clothes, coffee, among other budget categories.

Some of these categories are necessities like food; while others are discretionary. Variable costs require you to track them carefully. For example, one month you might spend $150 eating out at restaurants while the next month you might spend $300.

*** The easiest way to track even variable categories is to pre-determine what you can afford to spend each month in each category. I like to get this money out in cash and divide it among jars or envelopes for each category. When money is taken out from the food jar, the change and a receipt go back in the jar.

You can definitely cut back in this category but it requires discipline, hard work, and the ability to make decisions about your priorities.

**Heat bills can vary from month to month. Some companies will over a plan which standardizes your bill from month to month so you can budget properly. I actually use the highest bill amount for the year as the number in my budget so that in some months I am under considerably and use this under-spend for extra debt repayment or it goes into my savings account.

 We must not forget to look at savings as being an important category in our fixed expenses and debt repayment.

The two important categories of any budget are variable and fixed costs and it is important to recognize that both parts can be trimmed when needed.

Financial Management Tip Day 1: Need to save money? Start by getting your finances organized

Financial Management Tip Day 1: Get your finances organized in order to save money

If I asked you right now, could you find your last power bill or a copy of your latest credit card statement? When is the last time you ordered a copy of your credit report?

Despite living in a world where so much of our lives is automated and can be done on the computer, we all still deal with paperwork and mail. It’s time to get organized.

If you still get paper copies of your bills and statements you need to organize this information in one central location.

Although, many bills and statements are accessible online- keep track of how much is due and when. Make sure you don’t just read an email copy or reminder and forget to actually deal with it.

So I guess the challenge has 3 steps to start:

1. Gather all paperwork (decide what can be tossed or what needs to be kept). Sort it into like piles

2. Buy or use previously bought supplies -file folders, a filing box or cabinet, a fire safe for important documents, labels, just to name a few. This doesn’t have to be expensive.

3. Set up a bill payment calendar or spreadsheet so that you never make another late payment, miss paying a bill, or bounce a payment due to poor planning.