I have a confession to make. I am a real stickler when it comes to budgeting household expenses. Always on the lookout for ways to save without sacrificing, I think it makes the most sense to come up with a sensible budget you can live with.
- 1: Figure your monthly household income. This is take-home pay, after taxes and withholdings. Don't forget to include interest income and any other sources you might at first overlook.
- 2: Figure your current monthly expenditures. This includes fixed expenses like rent/mortgage, utilities, debt (if you have any), groceries and other items that are likely to stay the same from month to month. It also includes what you spend on extras, like entertainment and shopping.
- 3: Total your income and expenses and see where you stand. If you have a surplus, skip to number 7. If you're coming up short, continue on.
- 4: It makes sense at this time to go back over your expenses and first re-assess the "extras". Are there places where you can reign in the spending? Try setting a goal for the coming month in a category where spending seems excessive. Be realistic, but make it count. (Do you eat out a lot? Try preparing nice meals at home and reduce eating out in the next month to see how it affects your budget.)
- 5: After assessing the "extras" and trimming the excess, where do you stand? Still need to reduce spending? Consider how you can reduce utility bills, save on groceries and other essentials, or even reduce the rent.
- 6: Take your new budget for a test drive. Over the course of the next two months, you'll be able to look again at your income vs. expenses and see how you're doing. Are you saving more? Are the sacrifices you're making do-able? Are there places where you can trim even more? Chances are, you'll feel great "finding" money in one area of your budget and be encouraged to look for other potential savings.
- 7: Determine how to handle your monthly savings. Apportion it according to your needs, wants and goals. Make at least some of your monthly surplus work for you. Investing or reducing debt will snowball your savings and allow you to progressively save/earn more each month. Set aside another portion of each month's savings for that summer vacation, home improvement, or emergency fund. This way, when they hit, those larger expenses can be handled without blowing your new budget!
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Comments (16)
don't forget to budget for charitable giving! most non-profits need regular support to accomplish their work, not just the occasional support that comes when there is a major disaster.
Mint.com is really helpful.
A great app for managing expenses is Iexpensit. Allows you to set a budget up or simply track expenses over the course of a month. Think you may like it.
I love Mint.com.
One thing that really helped was to open another checking account for fixed expenses. My paycheck is split between the account for fixed expenses (mortgage, phone, internet, charity) and account for unfixed (food, shopping, entertainment). I know I will always have enough to pay bills, and I can look at one account balance to see if I have enough to blow on something I want.
I have a "bills" account too, katzamboni, and I love it for the same reasons!
two accounts great idea. I have two accounts but have not used it this way, thanks for the tip.
We also have a bills account. We each put in a set amount every month. We also have a joint savings account and joint credit card, which we use only for joint expenses. This is in addition to our individual checking and savings accounts and credit cards. It's a little complicated, but it works for us.
MINT. Mint for iPhone is bomb too.
I like Mint but their new budgeting tool is really wonky. I wish they would go back to the old one.
For people just starting out, I recommend - and I know this is dorky - Personal Finance For Dummies. I read it when I was in my early 20s and it really helped me understand how to make a budget, what my priorities should be, what questions to ask about car loans, and lots more. I haven't looked at it for a long time, but it was tremendously helpful. I have yet to see a personal finance website that doesn't more or less repeat everything I read in that book all those years ago.
I use Wesabe because it allows me to make "cash accounts" (which I just use to split and organize the money in my checking account). I hate that Mint requires me to upload all of my account information. I honestly don't care what they say, I don't believe it's safe to have all that information in one place. I also hate that Mint automatically tags your purchases. Anyone with the same concerns as me should really check out Wesabe. Love it!
In an odd aside: this is the exact same milk bottle I keep my spare change in.
and when your done budgeting, the wealthy barber was another dorky book that outlines the proper way to save in a easy straight forward manner.
Suze Orman has a great budget tracker:
http://www.suzeorman.com/2009actionplan/expensesheet/
and as for eating in more than out, Rachel Ray's 30 minute meals are smart and economical
Another tip to add - do online banking and go paperless. It's really nice to be able to look at exactly where your money went - and you never have to worry about being late on the bills since they take the money when they want it.
I really like Gail Vaz-Oxlade's worksheets:
http://www.gailvazoxlade.com/resources.html
She has a show on CNBC called Til Debt Do U$ Part, for people who are in extreme debt, and one of her rules is pay with cash and she doles out the cash by category weekly in jam jars.
One thing I've found really helpful is to keep a list of my expenditures along with a separate column noting how I could have made that item for less money at home (and for how much less!). It's helped curb my impulse buying & prepared food buying on the run. That helped me see that breakfast at Starbuck's isn't a necessity but a true luxury.
I loved the suggestion to budget for charity!
A silly little strategy that works: put spare $1 or $5 or even $10 in an opaque container on a random basis. You won't miss the little bit of cash and over a year you will be amazed at how much you have saved.
PS: I find Rachel Ray's 30-minute meals to be inexpensive only if you prep your own produce. Pre-cut = $$$