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?

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 5: Can you Spot the Missing Categories?

Financial Management Tip Day 5: Are you missing categories in your spending journal and budget? 

If we look at our spending journal in preparation for designing and implementing a budget, it is important to consider the categories of our spending. The hardest categories to include are those that do not show up every single month.

For example some spending that you might have forgotten about:

  • Do you pay your insurance monthly or yearly?
  • Do you pay your house tax monthly or yearly?
  • What about about your water bill?
  • Magazine subscriptions?
  • Birthday gifts/cards or holidays and celebrations
  • Vacations
  • Vehicle maintenance, inspection, registration, tire changeover
  • Registering children for summer camp or sports teams
  • Charity contributions
  • Household maintenance

I am a firm believer in the concept of planned spending (budgeted spending).

Any time you fail to plan in advance for spending than you end up short-changing yourself, stressing yourself and your budget out, relying on credit to fill in the gap, or not participating in certain events. So rather include these items in your budget on a weekly and monthly basis.

For example, your daughter wants to play soccer this summer. You need to save $400.00 for registration and new cleats. You get the reminder to register at the beginning of May and you have 4 weeks to find $400.00 -that is $100.00 a week which is a lot to find. What if you had 6 months to save this money? How much would you need to save every month? $67.00 a month or $16.75 a week. These numbers are much more attainable.

What if you decided to go on a family vacation next summer? You know you need money for flights, hotel, food, souvenirs, and outings/activities. You decide you need $5000.00 for this adventure. That means you need to save $417.00 a month or $104.25 a week for the entire year to save up that money.

Financial Management Tip Day 4: Categorize Your Spending

Financial Management Tip Day 4: Categorize Your Spending

Yesterday’s tip was on the importance of tracking your spending and today’s financial management tip is to take the information/numbers you gathered from yesterday’s tip and now you must categorize your spending. This take’s it beyond a mix of numbers and rather organizes them so that you can begin to see the bigger picture of where your money is going on a daily and monthly basis.

Now there are a few different ways to do this- you can write right beside your notes in your spending journal especially if you only spending money from one category in each shopping trip. For example, do you have a shopping trip that you spend money on groceries, toiletries, kids, and clothing all on 1 receipt?

If you are extremely visual, you could also use different color highlighters or markers to show each different category.

So the first question you are going to ask is…..What are the categories? I believe there isn’t a one fits all system for categories of spending. I like to have more categories because I make them very specific.

Also no miscellaneous category!

So let’s look at yesterday sample

Sample (7 days): Sally recorded the in’s and out’s of her money for 1 week….let’s examine it more closely

Date / Amount / Store / What you bought

June 9th/ +$450.00 /pay cheque (IN)

June 9th/ -$55.50 / monthly cell phone bill (OUT- UTILITIES)

June 9th/ -$3.40 /local coffee shop /coffee and brownie (OUT- EITHER ENTERTAINMENT OR EATING OUT)

June 9th/ -$24.80/grocery store/ milk, eggs, bread, bananas, apples, cream cheese (OUT- GROCERIES/FOOD)

June 9th/ -$7.90/drug store/magazine (OUT- LEISURE-MAGAZINE)

June 10th/ -$40.00/gas station/gas (TRANSPORTATION- GAS)

June 10th/ -$6.75/pizza/pizza for lunch (OUT- EITHER ENTERTAINMENT OR EATING OUT)

June 10th/-$75.00/vet bill for Fluffy (OUT- PETS)

June 10th/-$17.90/grocery store/ fried chicken for supper (OUT- GROCERIES/FOOD OR ENTERTAINMENT/EATING OUT)

June 11th/-$21.49/walmart/kitty litter, birthday card, new shirt (OUT- PETS, GIFTS, CLOTHING)

June 11th/-$5.40/coffee shop/coffee and a treat (OUT- EITHER ENTERTAINMENT OR EATING OUT)

June 11th/-$9.80/book store/new book (OUT- LEISURE/HOBBY)

June 12th/-$30.00/walmart/new toy for Johnny (OUT- KIDS)

June 12th/-$7.80/sandwich shop for lunch (OUT- EITHER ENTERTAINMENT OR EATING OUT)

June 12th/-$15.40/grocery store/supper (ground beef, spaghetti sauce, spaghetti, garlic bread) (OUT- GROCERIES/FOOD)

June 13th/ -$80.50/car maintenance (oil change) (OUT- TRANSPORTATION- MAINTENANCE)

June 13th/ -$120.00/ costco/ toilet paper, laundry soap, steak, salad mix, box of oranges, multivitamins, box of cereal (OUT- GROCERIES/FOOD, HOUSEHOLD, TOILETRIES, MEDICAL)

June 13th/ -$33.50/movie theater/ movie tickets and concession treats (OUT- EITHER ENTERTAINMENT OR EATING OUT)

June 14th/ -$8.80/chinese food for lunch (OUT- EITHER ENTERTAINMENT OR EATING OUT)

June 14th/-$56.70/clothing store/new shift and pants (OUT- CLOTHING)

June 14th/-$20.30/drug store/conditioner, shampoo, body wash, nail polish (OUT- TOILETRIES)

June 15th/-$11.30/drug store/prescription (OUT-MEDICAL)

June 15th/-$6.45/coffee and donut (OUT- EITHER ENTERTAINMENT OR EATING OUT)

June 15th/-$78.90/ car insurance (OUT- TRANSPORTATION-INSURANCE)

Today we will look at examining where Sally’s money went in a 7 day span.

  • Is she in the red or the black? RED Sally overspent by -$287.59
  • Did she under or over spend? Over spent
  • What hasn’t Sally paid this month? Just to name a few items missing but what about rent, heat, lights, house or apartment insurance, debt repayments, television/internet/home phone, savings just to name a few missing aspects that Sally hasn’t paid
  • Where has Sally’s money gone- what did she spend money on? Sally spent considerable money on her wants this month including toiletries, clothing, entertainment/eating out
  • What were Sally’s needs vs. wants? Needs: Food/Groceries, Vet Bills -preventive or curative for Fluffy, insurance on her vehicle, regular and preventable maintenance on her vehicle, a basic cell phone package so Johnny can reach her   Wants: Magazine, books, entertainment/eating out, non basic toiletries such as nail polish, clothing
  • What patterns do you see? Sally likes to shop. Sally doesn’t meal plan- supper seems spur of the moment. Maybe Sally doesn’t like to cook. Sally could bring her lunch with her rather than eating out all the time. Sally might go with the crowd from work for lunch and coffee (could she go but not spend money)
  • How could Sally save money? Sally could meal plan- shop the sales, have a specific grocery list, coupon. Sally needs a more concrete plan for her money- what is essential? Sally could brown-bag her lunch (a plan for lunches)