Budgeting: How to Take Control of Your Money

How you look at budgeting will determine how successful you are at it; if you’re negative about setting spending limits and monitoring yourself you need to change your attitude fast! Budgeting is all about taking control of your money instead of letting it control you, and saving towards goals that will bring you pleasure, satisfaction and security. Budgeting is basically a money plan. It’s positive, easy and rewarding, as long as it’s worked properly. For those of you starting out in the world of getting paid every two weeks and covering your first apartment’s rent and real bills, a budget will be your first step to sleeping easy at night. Follow the steps below to get you started on setting up your budget.

• Why have a budget?
• A budget teaches you how to live within your means while allowing you to save for the future. It’s not meant to be restrictive or limiting, but it is meant to keep you aware of today’s reality and help you reach tomorrow’s goals. The fact is you will never get ahead if you spend more than you earn, and a budget is what will keep you on the right track from the second you start following it.


• How do you set up a budget?
• It’s a piece of cake! The initial set up takes a little concentration and a lot of honesty with yourself, but beyond that you’ll see how everyday spending and saving eventually becomes second nature.


• Step 1:
• Get a piece of paper, a pencil and a calculator. Easy enough!


• Step 2:
• Gather up your checkbook and at least six months worth of cashed checks, receipts and any other records of spending you may have.


• Step 3:
• To begin setting up your budget, you need to start by determining what your total income for one month is, including salary, bonuses, tips, commission, etc., depending on your job. Make a column on your piece of paper and place this amount at the top, under the heading "Total Income".


• Step 4:
• Make another column and title it "Fixed Expenses". These are the expenses that you automatically write a check for every month or at certain points during the year for the same amount each time. These would include rent (or mortgage), loan payments (such as student or car loans), insurance premiums (for auto or life insurance), utility bills, magazine subscriptions and so on. Keep in mind that even though these are considered "fixed" amounts, that doesn’t mean there aren’t ways to lower their totals.


• Add up all of your fixed expenses. For items that are paid once or twice a year, such as insurance premiums and car maintenance, take the total amount and divide by 12 (or 6) to get the monthly average. Place this total in the "Fixed Expenses" column.


• Step 5:
• Next, make another column titled "Variable Expenses". Here’s where the "be honest with yourself" comes in. Variable expenses include what you spend on food, clothing, entertainment, hobbies, commuting, etc., anything that varies from week to week or month to month. The trick is to truly write everything down that you normally wouldn’t give a second thought to. How much do you spend daily on a cup of coffee? How much did you put in the vending machine today? Do you buy lunch everyday at work? Did you bring your comforter in to be dry cleaned. Did you develop the two rolls of film from your vacation? All of these add up so quickly it will make your head spin. Clearly this category has the most potential of finding ways to save. Add up all of your variable expenses, and again divide irregular spending by the number of times a year it is incurred for the monthly average (as in visiting your hair dresser every three months). Place this total in the "Variable Expenses" column.


• Step 6:
• It’s time to total. Deduct the totals of your fixed and variable expenses from your total income, and the result should be what’s left over for savings. For many people this is a real eye-opener. If the amount left over is in negative numbers, you really have a lot of changes to make. If there is a positive number left over, is it a realistic amount to accomplish your goals? The only way to know is to set up your goals, as detailed below.


• How do you set up your savings and goals?
• Here comes another list! The number one way of achieving your goals is to write them down, as well as the amounts you will need to save in order to reach them; there’s no way of getting around this. A clearly executed plan of attack is the best way to achieve them. Be sure to distinguish between "needs" and "wants" when making your lists; you may "need" a new car, but you may "want" one with a six CD changer, a rear spoiler and leather seats. Only you can determine what is achievable for you.


• Step 1:
• Write down a list of short term goals. These should include goals you want to accomplish within a year or so, such as buying a new car, going on a fun vacation, updating your computer model, and so on. Write down the total amount it will cost for each of these items, and then figure out how much you would need to set aside each month in order to reach each goal within a certain time frame. And again, be honest! Set aside an amount that is realistic to your budget, and really set it aside. Open a separate savings account and deposit that set amount every week or month for your goal, and track your progress after each deposit. It will add up if you are diligent; you will only be cheating yourself if you don’t follow the program.


• Step 2:
• Write down a list of long term goals which will take longer to save for, such as a house, retirement, or even getting yourself out of debt. Again, determine what it will take to reach these goals within a certain time frame and stick to it. Another savings account for each long term goal is appropriate, especially if it keeps you from dipping into it. Out of sight, out of mind really applies here.


• Step 3:
• Don’t forget about an emergency fund! You must put aside some money for those unforeseeable circumstances, such as a car accident, a medical issue or loss of a job. This also applies to situations that aren’t as dire, such as an appliance breaking down or even a friend’s wedding (the gift, an outfit, traveling and lodging expenses can add up quickly). Without an emergency fund, you can quickly lose your footing if you don’t have a way of taking care of these situations.


• How to save.
• It’s easier than you think. Everywhere are opportunities to cut expenses and add to your savings.


• Pay off your credit cards and debts ASAP! Interest rates and finance charges are the equivalent of throwing your money out the window. Also, try to have these interest rates lowered.
• Maintain your car properly. You will save on gas and repairs in the long run.
• Join a car pool. This saves wear and tear on your car, reduces commuting expenses and gives you someone to chat with.
• Take a defensive driving course for the insurance reduction.
• Use fluorescent bulbs and lower the thermostat in your home.
• Save your change in a jar, and roll it yourself. If you don’t dip into it frequently for laundry and parking meters, you’ll really get a kick out of how easily it adds up.
• If you’ve finished paying off one of your loans, continue to put that amount into savings instead of erasing it from your budget.
• Study your phone bills carefully. Between local rates, long distance calls and cell phones, there is always room to shed some expenses. Send more e-mails or write letters!


• And the best way to save is to truly work your budget and put your plans into action. If you see after a few months that you are not reaching your goals, revise your budget until the numbers work to your advantage. Keep all receipts and good records of your spending at all times so you can see where your money is going, pinpoint trouble spots and maintain control of your expenses.

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