If you want to save money, you have to have a budget. It is that simple.
It does you no good to save all the money you can in one area if you go blow it somewhere else. I used to drive my wife crazy, back in my spending like a mad man days.
We would save all week on groceries, on commuting to work, on every other little thing, and then I would go out and blow it all by buying a $100 shirt at Brooks Brothers.
Hey! I loved those shirts and a lot of them have lasted ten years or more, which puts them really at ten dollars per year, which is a good price for a shirt. But that is not the point here. We saved, I spent. We never got ahead that way. In fact, the only place we got was divorced.
Doing your Budget
Doing a budget is easy. If you have Excel you can put it together there in no time. If you hate spreadsheets, there are a host of resources online that will help you.
The first thing you have to input is your fixed non-discretionary expenses. Your mortgage or your rent goes here. Other expenses in this category are items that do not change from one time period to the next, like insurance premiums, club memberships, and phone, cable and internet bills. These are the expenses that you have no control over, short of moving or canceling your internet service.
Next comes the variables expenditures and things that you may have some control over. These include expenditures like utilities, your cell phone and charitable contributions. Clothing should be listed here. You have to have some, but you can control how many and of what kind (except for the Brooks Brothers shirts. They are a necessity).
You should break out separate line items for your groceries and non-food household expenditures. The non-food items are things like toilet paper, laundry detergent and tooth paste.
Budgeting for Fuel and the Kids
Another category is transportation. You have some control over how much you drive and what form of transportation you take to work or school, so you should make gas a separate item. Gas is expensive. If you can cut down the amount you use, you can save money.
Then there are medical expenses. This is all the potential cash outlays not covered by your insurance.
If you have kids, don’t forget to budget for them. Separate items though. The food for the kids should go in your food budget. This is a place for non-discretionary items like diapers and discretionary things like toys.
Now entertainment. You cannot eliminate entertainment items completely. A human being has to relax from time-to-time. But you can decide what types of fun you are going to have and how much you will be spending on having it.
Don’t forget to budget for the food for your dog! Or gold fish.
Other Important Budget Items
There are other big things that need to go into your budget too. Things like debt pay down, or conversely, savings. Budget money for an emergency fund too. Build up a war chest for yourself that equals anywhere from three to six months of your salary.
We have glossed over a lot here. Things like coffee at work and the car registration have to be budgeted. You will need to sit down and think about what it is that you spend money on.
And maybe this is the most important part of the budgeting process. You have to think about what you are spending money on. Then you can decide if you want to keep spending money the way you are. You can reduce or eliminate all together certain expenditures.
Tracking Your Spending
Once you have the budget in place, you can track what you are actually spending against what you have budgeted. This is another useful, money saving exercise.
Making yourself look at what you are spending is going to make you aware of the value, to you, of your expenditures. It makes your savings project scientific, systematic and rational. This as opposed to spur of the moment, off the cuff savings. You can guess which approach will bring you more savings.
We are not through with your budget yet. There is another whole side to the budget process, revenue. You have to watch how much you are bringing in.
Put down all of your revenues broken down by the source of the revenue. If you have just wages from one job, put that down. If you are like many of us, either because you are entrepreneurial or because you need to make ends meet, you have income from a second source. If you are lucky, you may even have some passive income from investments, rental properties or royalties. Put all of this income down.
Match your income to your expenses. If you have more expenses, get to work cutting down on those ouflows. Or, increase your income with another job. Sorry, but don’t just pile up more debt.
If your income is greater than your expenses, well done! Congratulate yourself on achieving the first step to financial security. Now start putting aside money for an emergency fund. Once you have an emergency fund, figure out your short, medium and long term financial objectives.
Only now can you start saving for the house, the second house, the vacation house, your kid’s education and/or your retirement.
Include Your Family
One more money savings suggestion. Put your budget up in the kitchen where everyone can see it. Make a game out of saving money. Make small inexpensive prizes for those who do their part in trimming costs. Co-opt the entire family into the process. Not only will you be teaching your kids great money skills, but you might just save more money in the process.
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