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Advice For Sticking To A Budget

How To Convince The Whole Family To SaveCreating a budget for yourself or your family isn’t really that tough. There are numerous smart phone apps and software programs that make this about as difficult as slipping on a sheet of ice. For example, the smart phone app Mint will track your spending then divide everything into categories. The software program You Need A Budget will not only help you create a budget but has four simple rules that could help you become debt free. Other smartphone apps that would help you develop a budget include Expensify and Easy Envelope Budget Aid.

The importance of having goals

Before you create your budget, it’s important that you estabish both short-and long-range goals. For example, a short-term goal could be to buy a new car, while a long-term goal might be your kids’ education. The reason why it’s important to have goals is because without them, it’s almost impossible to stay on a budget. But if you have written goals and can see you’re making progress towards achieving them, this can be a great motivator to help keep you on track.

Where to make cuts

Okay, you’ve tracked your expenses for the month, you’ve organized them into categories and presto! You have a budget. However, next comes part two – deciding where you can make cuts. Most people find the easiest categories to reduce spending are food, clothing, eating out and entertainment. However, if you put your mind to it there’s probably no category where you couldn’t make cuts. In fact, you should go over every category at least twice looking for places where you could cut your spending. You just might be surprised at how much money you could save if you put your mind to it. If you need help in cutting your budgeting here’s a video with 10 good tips for finances and budgeting.

Sticking to that budget

Many people learn that the even harder part is to stick to a budget. Here are some tips that could help you live according to your budget.

  • Post your budget in a visible place. Put it somewhere where everyone in your family can see it – maybe on your refrigerator or a bulletin board in your family room.
  • Make a note of every dollar you spend, every time you use your debit card, go to an ATM machine and every check you write. Get out your budget and refer to it regularly to make sure you’re staying on track. There will undoubtedly be times when you overspend in some area. Just relax and reduce your spending in another area to compensate for it.
  • When your kids ask for things that are not in the budget, remind them why your family is working to spend less. If your kids are teens, they might even be able to earn the money they need for the things they want.
  • Keep that smart phone app (or a notepad) with you at all times and continue to write down everything you spend money on. Keep all of your receipts, too. At the end of the month, you will need this information to evaluate how well you are doing in your budgeting.
  • Remind your family why you’re budgeting Get out that sheet of your short- and long-goals. Remind them why they’re saving money now – for their college educations or that new car.

If you’re overspendingIs A Frugal Budget Really Helpful

If you overspend of if your total spending was more than you had budgeted, try to figure out why this happened. The reasons for this could include:

  • When you developed your budget you over looked an important living expense or debt
  • Your budget isn’t realistic. If your budget is too Spartan, it may be impossible for you and your family to live on it.
  • You didn’t try hard enough to live according to your budget. If you want to make your budget work, it takes a 100% commitment from everyone in your family.
  • You had an unexpected expense that month. Maybe you had to work late at the office so that this increased your childcare expenses or maybe your car broke down.
  • There were expenses that increased through no fault of your own. For example, the cost of gas went up or maybe your insurance premium increased.
  • You saw a drop in your income. Maybe your sales commissions wasn’t what you thought it would be, you had to take a cut in your pay or a client failed to pay you that month.

Your budget should be a game plan

If you find that you’re overspending in some categories and under spending in others, don’t be afraid to make changes. Your budget should be more like a game plan than a restraint. It should change as your life and your finances change — we hope for the better. The good news is that if you do stick to that budget, you’ll get your debts paid off quicker. Plus, the day will come when you’ll be able to add some extras to that budget – such as things you had to give up for now. You may also be able to start saving more money so that you’ll have an emergency fund that would tide you over next time you have one of those unexpected expenses.

Don’t give up

The important thing is to never give up. Sticking to a budget isn’t easy, especially when you have a family that needs to buy into it. You may have to become something of a nag for the first few months – constantly reminding your family members how much you’ve budgeted in certain categories and why it’s important that they stay on budget. But if you don’t give up, you will succeed and your life will get much better.

Does The Word Budget Frighten You?

Hands of woman making a budgetWhen you hear that word budget, do you break out in a cold sweat? Do your palms get clammy? Do you want to run away and hide?

These are all common reactions to the word budget. However, they shouldn’t be. A budget can actually be your BFF.

Why budget?

The best way to determine whether or not you need a budget is to ask yourself questions such as, “are my finances out of control,” “do I always run out of money before I run out of month,” “do I know where my money’s going,” and “am I saving money or just running up debt?”
If you answered “yes” to any of these questions

If you answered “yes” to one or more of these questions, then you do need a budget. But don’t be terrified. Budgeting is not really that awful. It does take some time and self-discipline but once you have a budget in place, your life will be so much simpler you’ll wonder why you didn’t do this months or even years ago.

This article teaches the basics of budgeting and contains information on:

• Getting started
• The importance of goal setting
• Why it’s vital to track your spending
• Why use a spreadsheet program to create your budget
• Finding categories to make cuts
• How making sacrifices can feel good
• Why your budget should be a blueprint and not a straitjacket

Getting started

The first thing you need to do before creating a budget is determine where your money’s going. You do this by tracking your spending for about a month. You can do this the old-school way with a pencil and a notepad or if you have a smart phone, there is a wealth of apps available to help you do this. The nice thing about smart phone apps is that several of them will automatically categorize your spending for you. If not, you will have to go through and assign each of your expenditures to a specific category such as food, shelter, transportation, clothing, entertainment, insurance, and so forth.

Step two

Even after you’ve tracked your spending and divided everything into categories, you’re not ready to create a budget. The reason for this is that budgeting starts with goals. You need to sit down and have a long talk with yourself regarding your short- and long-term goals. You should even spreadsheet them so you can track your progress. For example, if one of your short-term goals is a weeklong vacation in Fiji, you should put that in your far left column, followed by the amount of money you will need to achieve it. Each month as you save money towards that goal you reduce the amount of money in the second column until it reaches zero. In the meantime, you will be able to see the progress you make each month towards achieving your goals, which can be a powerful motivator to stay on the budget you’re about to create.

Get a spreadsheet program

If you don’t already have a spreadsheet program, you need to get one. If you have Microsoft Office, you should have Excel as part of the package. If not, you can get free spreadsheets from OpenOffice.org or from Google documents. Once you get a spreadsheet program, you will use it to create your budget. You should have your spending categories in the far left column, followed by the amount of money you’ve budgeted for each and then 12 columns to the right – one for each month of the year.
For more information on doing a budget with a spreadsheet, check out this video. Note: This lesson is based on Excel but the information should work with any spreadsheet program.

Get out the scalpel

How do you determine how much money to budget for each category? You’ll need to review how much you’ve been spending by category and decide where you can make cuts. If you learned that you’ve been spending more than you earn, your first step should be to cut your total spending to less than your total earnings. Once you’ve done that, you need to then get to work finding areas where you can save money to start working on your goals.

The fruit that hangs low

If you’re a typical consumer, the places where you should find it easiest to make cuts – or the low hanging fruit – will be groceries, entertainment, eating out, vacations, utilities and, unfortunately, those nice, little extras such as a health club membership, tanning salons, cable TV and magazine subscriptions.

Yes, you will need to make sacrifices

As you may have guessed by now, you will need to make sacrifices in order to cut your spending. The good news is that you will be able to see how those sacrifices are worthwhile as you move closer and closer to achieving your life goals. In other words, giving up a health club membership or eating out just twice a month instead of five times a month won’t seem like so much of a sacrifice if you can see that you’re growing closer each month to that dream vacation.

lady justice statue

Think of it as a battle plan and not as a straitjacket

A good way to think of your budget is as a battle plan. As with a battle plan, you can make changes as you learn more about your spending and your priorities. Don’t beat yourself up if you find that you cannot successfully stay completely within your budget in each and every category. Look for areas where you’re spending more than you had budgeted and areas where you are spending less. You can then adjust your categories accordingly. For example, if you find that you simply can’t cut your grocery bill by as much as you budgeted, you might find you’re spending less on transportation than you thought. You could reduce it and then increase your grocery budget accordingly.

Who Needs A Budget? Maybe It’s You

Smiling couple with laptop
When you hear the word budget does it send cold chills running up and down your spine? Would you rather eat a plate of broken glass then make and stick to a budget? Then there’s good news. You may not need a budget.

Who needs a budget?

There are all kinds of articles and websites stressing the fact that you should have a budget. However, this may not be true. There are several types of people who basically don’t need a budget. First, there are people who have so much money there is no reason for them to track their spending and make a budget. Those fortunate souls can spend their money however they wish and with no regard for the consequences. A second group of people that may not need a budget are people in their late 30s, 40s and older who have been handling their finances successfully for 20 or more years. These folks know instinctually how to manage their finances, how to save money and how to stay out of debt.

People who need to budget

If you’re in your 20s or early 30s and just starting out in the real world, you may need a budget. You may also need a budget if you’re struggling with debt – regardless of your age.

What is a budget and why it’s important

What exactly is a budget? According to the online encyclopedia  Wikiepedia, a budget is  a finance plan that allocates future personal income towards expenses, savings and debt repayment. Why is budgeting so important? The short answer to this is that a budget is a plan for  how you will spend your money and how you will achieve your goals in life. If you don’t have a plan, you’ll most likely end up struggling to get through every month without running out of money or you could end up seriously in debt. Or as the famous baseball player Yogi Berra once commented,” If you don’t know where you are going, you might wind up someplace else.”

Tracking your expenses

The first thing you don’t want to do in creating a budget is to just sit down with a piece of paper and a pencil (or a spreadsheet) and start making guesses as to how much you’re spending by category, such as groceries, entertainment, insurance, dining out, and so forth. That would be a big mistake. What you want to do is actually track your spending for at least a month. You can do this with a notebook or you could use one of the several smart phone apps now available. Three of the most popular of these are PocketMoney Lite, Xpenser and Expense Tracking. The website Mint.com also has an app that can be used on all three types of smart phones and that does much more than track your spending. In fact, it’s a kind of a Swiss Army knife of personal finances as it can be used to keep track of your checking and savings accounts, your investments and your credit cards. Once you use Mint to track your expenses, it will automatically categorize them for you and then send you an alert any time you exceed the amount you budgeted for a category.

Creating your budgetWoman with pen and pencil making budget

Once you have tracked your spending for 30 days, you need to divide it into categories. There is one list available that has more than 90 budget categories. But this could be serious overkill especially if you’re just beginning to budget. A better idea is to start with just major categories and then add others as you learn more about your spending habits. Here’s a “starter” list of budget categories.

• MORTGAGE OR RENT
o Homeowners/Renters Insurance (actual amount paid)

• UTILITIES
o Electricity
o Water and Sewer
o Natural Gas or Oil
o Telephone (Land Line, Cell)

• FOOD
o Groceries
o Eating Out, Lunches, Snacks

• FAMILY OBLIGATIONS
o Child Support/Alimony
o Day Care, Babysitting

• HEALTH AND MEDICAL

• TRANSPORTATION

• DEBT PAYMENTS

• ENTERTAINMENT/RECREATION

• PETS

• CLOTHING

You may want to eventually divide some of these general categories into more specific ones. For example, you might want to divide transportation into gas, repairs and auto insurance. But for most people, these categories would be a good place to start.

Where to make cuts

Of course, the purpose of budgeting  is not just to see where your money is going but where you can make cuts – to save money or to just get your spending under control. To do this you will need to carefully review all your categories to see where you can reduce your spending. If you find that you’re spending more than you earn, your first goal should be to reduce your spending to the point where your expenses are less than your earnings. To do this you will need to carefully review each category looking for linkages – places where you can make cuts. Most people find that the easiest categories to reduce spending are food, entertainment, clothing and eating out.

Sticking to that budget

Once you have created a budget, you’re halfway home. But now comes the part that might be even more difficult, which is sticking to it. You will need to continue tracking your spending to make sure you’re not exceeding any of your budget categories. Some people can do this by putting all of their spending on credit cards. However, this does require a fair amount of self-discipline. One alternative to this is to use what’s called the envelope system of budgeting. Here’s a short video that teaches the system.
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The joy of budgeting

As you can see, budgeting takes time, effort and some amount of self-discipline. But don’t think of budgeting just as a straitjacket or a nasty task that you must perform over and over. Instead, keep focused on the benefits of budgeting. For example, if you’re struggling with debt budgeting can help you get it under control and ultimately paid off. You can also use budgeting to build up an emergency fund equivalent to six months’ earnings so that you’ll have enough money to weather just about any financial emergency without having to create debt. Plus, budgeting can help you fund your retirement. It’s become increasingly clear over the past few years that counting on Social Security to fund your golden years could be a big mistake. You need to be saving money for your retirement, which is almost impossible to do unless you’re budgeting.

In short, budgeting can be a great tool for improving your life now and even 30 years in the future.

Do You Really Need To Budget?

Hands of woman making a budgetI’ve written dozens of times, as have many others, about the importance of having a budget. But as they say at football games, “after further review,” I’ve changed my mind a bit.

The problem with budgeting

Budgeting has a bad rap and for good reason. It isn’t any fun. It’s time consuming. It’s hard to stay on a budget. And it can be depressing. These are the reasons why many people don’t budget. They start saving for retirement, concentrate on paying off debt or leap into the stock market without really understanding their financial situation.

How much is coming in, how much is going out

The basic fact is that it’s important to know how much money you have coming in and where it needs to go. This is really the only way to see how you could pay off debt, save money or invest, and it’s nearly impossible to know this without a budget.

Budgeting is more important for some people

Budgeting is a good idea for everyone. But there are some people who need it more than others. For example, if you’ve never created a budget before, you should do so now as it’s almost guaranteed to improve your finances. You’re likely to see stuff you spent money on that you never noticed – a lot of small “budget leaks.” It you create a budget, you’ll be able to spot these leaks and control them.

Do you know your net worth?

Do you know whether your net worth is increasing each month? If not, you definitely need a budget to track your finances. Your net worth should be growing each month and if it isn’t, a budget will help.

If you feel you’re not being paid enough

A budget can tell you if you’re being paid enough to cover your expenses and have money left over to invest or save. If you work in an industry where image is important, you may find you’ll need to make certain sacrifices to maintain that image. And only a budget can help you do that.

If you can’t predict your income

If you work on commission or some other job where there’s not a steady paycheck, you need a budget with a very conservative starting point. It could also help you put aside money during the boom times so you’ll be able to get through the times when things get lean.

When you’re changing careers

If you’re in the middle of changing careers you may not be able to count on the same salary. If you have a budget, you’ll know your required expenses and how much money you need after taxes to pay for them, which could help you do a better job of evaluating job opportunities.

If your life will be changing

Are you about to get married or have your first child? Or maybe you’re going through a divorce. In any of these cases, you’ll be faced with new financial realities. You may have more or fewer dependents and more or less income. A budget can help you make the necessary adjustments in your spending so that you avoid getting into financial trouble.

A fresh look

While these situations make it more important to have a budget, it’s really a good idea for everyone to budget. With today’s technology, you could use a mobile application, a software program or do it the old-fashioned way with pen and paper. But regardless of which of these methods you choose, having a budget will help you take a fresh look at your finances and plan your spending so you can become financially independent.

“What’s The Best Way To Set Up A Budget”

Where it starts

The way that setting up a budget starts isn’t with setting up a budget. It begins with tracking your expenses for three to four weeks so you can see where your money has been going and why it’s all gone by the time you get paid again. You can do this the old school way with a pen and notepad or with your smartphone and an expense tracking app. If you have an iPhone, there’s a fast and beautiful expense tracker called Next. Android phone users could choose Cashbook Expense Tracker or a similar app.smiling woman managing finances

Do a mash up

Step two in setting up a budget is to mash up your expenses into logical categories. This could be food, entertainment, medical costs, insurance, mortgage or rent, transportation and so forth. (Click here for a comprehensive list of budget categories and recommended percentages.)

Where, oh where to make cuts

Now that you know where your money is going you need to figure out where you could reduce your spending. Most people find that the easiest categories are food, clothing and entertainment. But you need to review all your categories, asking yourself the question how can I spend less. For example, if you use the list of budget categories I mentioned in the previous paragraph, you would find that you should probably be spending somewhere between 10% and 13% on food. If you find you’ve been spending 20%, this is a place where you might be able to make a cut. How about clothing? The recommended percentage for this category is 5%. Have you been spending more? Then this is an area where you might be able to save some money.

Don’t forget savings

Make sure your budget includes the category “Savings.” Your goal should be to save 10% of your take-home pay each pay period. You should put the money into a savings account and then maybe move it into a CD every quarter. That makes the money a bit more difficult to access, which reduces the temptation to dip into it.

Make goals

If you don’t create goals you may find it very difficult to stay on a budget. You should write down both short- and long-term goals. A good short-term goal might be to save money for a vacation. Long-term goals could be to get out of debt or buy a house. The point is to have attainable goals so that you can see you’re making progress. When you can see you’re moving towards realizing a goal, you should find it easier to stay on track.

Your budget shouldn’t be a straitjacket

Your budget shouldn’t be a straitjacket. It should be more like a blueprint. As you become more and more experienced with budgeting, you should be prepared to make adjustments. You might find that allocating 12% of your budget for food isn’t enough while 13% for transportation is too much. In this case, you could cut the 13% for transportation down a bit and use the money to increase your food budget.

Budgeting – The First Step Towards Financial Independence

How would you feel if you were to wake up tomorrow morning knowing that you were financially independent – that you had enough money in savings to weather any emergency, that you were building a nice retirement fund and that you had zero debts? My guess is that you would feel pretty darn good. None of this is impossible but it all starts with developing a budget.Hands of woman making a budget

Why a budget is critical

It’s easy to get spooked by the word budget because it has such a bad connotation. When you hear the word budget you may think “financial straitjacket”. Plus, sticking to a budget takes a lot of work. But you shouldn’t think of a budget as a negative. You should think of it as a plan for managing your finances and eventually becoming financially independent.

Every little penny

The first step in creating a budget is to track all of your spending right down to the penny. This should include both your fixed and variable expenses. Fixed expenses would be your mortgage or rental payment, your car payment and any other payment you are required to make every month. All your other expenses would be variable as they would change from week to week or month to month.

Divide your spending in the categories

Once you know where your money is going in general, you need to determine where it is going specifically. You do this by dividing it into categories. This could include transportation, food, entertainment, medical expenses, clothing, transportation, housing, and debt repayment and last but certainly not least, savings.

Start chopping

The next and probably most critical step is to carefully review each of your categories and start chopping. Of course, you won’t be able to do much about your fixed expenses because they are, well, fixed. However, every other category should be open to cuts. You should be able to easily cut the amount of money you’re spending on food, clothing and entertainment. I have seen examples of where families have been able to cut their spending on food by as much as 50% simply by using coupons and taking advantage of special store offers such as BOGOs (buy one, get one). You might be able to cut your entertainment costs simply by eating out less, by going to fewer movies or by staying away from those clubs. And, believe it or not, you should even be able to cut your transportation costs by ridesharing, carpooling or using public transportation several times a week.

Sticking to that budget

If you find you’re having a hard time sticking to your budget, there are several things you can do that could make it easier. Some families have found that they can turn budgeting into a game. They set goals for the week such as keeping their grocery spending to $100 and then have a celebration when they meet those goals. You could give prizes to family members for coming up with the best suggestions for cutting costs and staying on budget. And be sure to reward yourself periodically for staying on budget. This doesn’t have to be anything lavish. It could just be a family night at the movies or a new movie on DVD.

Dealing with debt

While you might think of your debt as a fixed expense, it is not. We could consolidate your debts through a program of debt settlement that would save you thousands of dollars. Once we have settled all your unsecured debts, we would provide you with an affordable payment plan that would be much less than the total of your current monthly payments. In fact, your monthly payment to us would probably be hundreds of dollars less than the total of your current monthly payments. Call us today or fill in the form you’ll find on this page to get more information about debt consolidation done through debt settlement.

Financial independence

Develop a budget, get your spending under control, reduce or eliminate your debts and before you know it you will be enjoying financial independence.