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Budgeting For People Who Hate Budgeting

When you hear the B word as in budgeting, does it cause cold chills to run up and down your spine? Or maybe it feels as if someone had just run his or her fingernails up and down a blackboard. If you hate budgeting it’s probably because you’ve always tried to do it the hard way, which means tracking every single little thing you spend money on down to that candy bar you purchased at work last week. Then you had to get out all of the receipts you saved so faithfully, your credit card statements and your checking account statement, make a list of everything and then divide it into categories. Ouch!budget on top of money

Then there’s figuring out how much money to allocate to each category, hoping that when you total it all up there will be money left over to save or to pay down your credit card debts. But that’s not even the hardest part. The hardest part is sticking to that budget. This is so much work we can understand why you would hate the B word. Well, take a deep breath and relax. There is a much easier way to budget but that will still get you to where you want to be.

No complicated tracking schemes

If your goal is to get your finances under control without the headache of budgeting the traditional way there are easier answers. It begins with making a simple spreadsheet. List on it your monthly expenses and income. Don’t have a cow over your expenses. Just estimate how much you spend each month by general categories. You can probably do this in about five minutes.

Have just a few categories

There’s a lot of budget software out there where you are required to fill in a zillion different categories and subcategories. If you’re kind of a linear person this can be useful but it’s not required. Use broad categories instead like food, gasoline, entertainment, housing and utilities. You can always make adjustments or add more categories later.

A simple budget

There are many different ways to organize a budget but the easiest is what’s called the “60% solution.” This just means fitting your normal monthly expenses into 60% of your net income so that you will have room left over for savings, retirement and “fun money.” These are the areas that can break you budget if you forget to include them.

What goes in the 60%?

These should be your monthly expenses including housing, insurance, food, Internet, and transportation. And yes, this is the part that is generally thought of as being your budget.

The rest

Of the 40% you should have left then 10% should go towards your retirement. The easiest way to do this is to have the money automatically withdrawn from your checking account and put into your 401(k) or IRA. If your employer offers a 401(k) that’s where the money should go at least for now. Ultimately you will want to have an IRA, too, but that’s the subject for another article.

A second 10% should be allocated towards debt reduction or long-term savings. This is money that you should invest in stocks, a mutual fund or an index fund and can also serve as an emergency fund. If you’re having a problem with debt, you should use this money to pay it off and you might even want to take some money from another of your categories such as retirement so that you could increase this to about 20%. Of course, once you’ve gotten your debts paid off then you can change back to long-term savings. In the event that you are working to reduce your debts, you should also create a small emergency fund out of either this category or the next one.

Short-term savings

A second 10% should go for expenses you can’t exactly anticipate. This would include auto repairs or maintenance, medical expenses, birthday and holiday gifts and home maintenance. Don’t be afraid to spend this money when these expenses crop up.. That’s what it’s for. When you run into these expenses the money will be there to cover them instead of having to take it out of one of your other budget categories or worse yet putting it on a credit card

Fun Money

Here comes the good stuff. As mentioned above, you need to have some fun money and this should be the final 10% of your budget. You can use this money to eat out, go to movies, buy books, go clubbing, camp out overnight or whatever it is that you enjoy. And you can do it guilt free because you’ve covered all your other bases.

Pay all your bills online

You can simplify your financial life considerably just by arranging to pay all of your bills online. This should be most of the stuff in your 60% category such as rent or your mortgage payment, utilities, cell phone, etc. If for some reason you can’t pay these electronically arrange to have your bank mail checks to your vendors. And arrange to have these payments made automatically so that you will never have to worry about missing a payment.

Automate your savings, too

You can also automate your saving, which makes it much easier because it’s harder to miss money you never see. Get a high-yield online savings account such as from ING Direct, or HBSD and have transfers made automatically to it from every one of your paychecks.

Use cash for everything else

Assuming that you’ve set up automatic bill paying and saving you should be able to pay cash for everything else such as your fun money, gas and groceries. You can go to your bank, credit union or a nearby ATM and get the money twice a month. The reason that you want to do this instead of using credit cards or checks is that it’s simpler. When you pay cash for things you never have to worry about overspending. In fact, you shouldn’t use credit cards unless you absolutely have to such as when you’re traveling.

woman with a full grocery shopping bagHave three envelopes

If you decide to use cash for the three categories listed above, get three envelopes and label them accordingly. When you go shopping for groceries, bring the groceries envelope with you. You will know exactly how much is left in that category before you begin shopping. Pay for your groceries out of the envelope and you’ll easily be able to see how much is left. It’s simple and requires no tracking. Of course, when the money is gone, it’s gone. You’ve spent the amount you budgeted. If you’re a few days short of when you will next get cash, you could move the money from one envelope to another with no need to make adjustments to your budget.

Just 20 minutes a week

There, you now have a budget, you’re organized and you have your finances under control. However, you’ll need to do some maintenance and that should require only about 20 minutes weekly. Schedule each week a day and time to review your finances. Spend that time putting your transactions into your financial software or spreadsheet. Assuming you’re using the plan outlined in this article all you’ll have to do is go on the Internet review your bank account and enter the bills you paid, deposits, ATM withdrawals and any fees you were charged. You might want to spend another 5 to 10 minutes reviewing your budget to make sure that all of your bills were paid. If not, pay them. It’s that simple.

5 Simple Ways To Trim Your Budget

We stumbled onto this Infographic from Mint.com the other day and felt it did a great job of “visualizing” simple things you could do this year to trim your budget.

 

Cutting down on your daily expenses

Rework your monthly payments

Dine out smarter

Cut down on daily indulgences

Pay in cash

“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.

Help me make a budget

Woman with pen and pencil making budgetThe foundation of good money management is budgeting. And the foundation of budgeting is good bookkeeping, which begins with tracking your expenses so that you’ll know where your money is going. You will need to track every expense for at least a month. You could do this the old-fashioned way with a pencil and a notepad or if you have a smart phone with one of apps now available such as Cash back Expense Tracker or Expensify for Android phones or Expense Tracker Pro for iPhones.

Use a spreadsheet

Your next step should be to set up a budget on a spreadsheet. The top row should be months and each leftmost row expense categories. You should divide your expenses into fixed and variable. Your fixed expenses would typically be your rent or mortgage payment, your auto loan, insurance and property taxes (if applicable). Your first “month” needs to be the expenses you’ve just tracked – as a starting point. Your next month would then be the current month. Don’t forget to have at “Totals” row at the bottom of each column.

What are variable expenses

In comparison, variable expenses are those where you could make cuts. Examples of these include food, entertainment, hobbies, dining out, subscription and dues, household expenses, and don’t forget savings.

Where you could make cuts

Now that you’re organized and can see where your money has been going by category, your goal should be to determine where you could make cuts to free up the maximum amount of money for savings, to pay off debt, to take that dream vacation or some combination thereof. The areas where most people find it easiest to make cuts are in food, entertainment, fitness, eating out, subscription and dues. Unfortunately, these are the sort of “fun” categories, which means if you really want to reduce your spending you will be making some sacrifices.

Some specific examples

For example in the category of entertainment, do you have cable or satellite TV? Is it a standard or premium package? If it’s a high-end package, you should be able to scale that down to a more basic one. When it comes to dining out, you don’t have to give it up entirely. Instead, simply choose to eat at less expensive restaurants. What about your cell phone? Do you have one of those all-inclusive packages that let you talk, text and browse the Internet? If so, you might be able to scale back to one that just lets you make and take calls. If you’re worried about your fitness, you wouldn’t necessarily have to give up that health club membership. You might be able to find a cheaper club or use a community rec center for your exercise. We have two great ones near us and they cost just $1 a visit.

The lowest hanging fruit

If you’re typical, food is the category where you should be able to make the biggest and easiest cuts. In fact, you could probably cut your food costs by at least 25% just by using coupons and taking advantage of store specials. Our supermarket recently sent us a “personalized” coupon that saves us money on 10 of the items we buy most regularly. Maybe your store does the same. If not, look for specials in your local newspaper, especially what are called BOGOs or buy one, get one. When you find a sale on common, everyday items such as paper towels, toilet paper, detergent and the like, be sure to stock up for at least a month.

Keep tracking those expenses

You will need to keep tracking your expenses and then entering them into your spreadsheet so you can see how you are doing versus each of your budget categories. You may have to make some revisions after the first few months but that’s acceptable so long as you don’t exceed that budgeted “Total” at the bottom of each month.

Budgeting – The 7th Way To Get Out Of Debt

budgeting money to conquer debtDid you know some experts say there is good debt and bad debt? Good debt is debt used to buy something like a house that will appreciate in value or an automobile that can be used in your job. On the other hand, bad debt is debt that was used to buy an item that will depreciate in value or that has inherent value – like a flat screen TV.

If you have debt that’s spun out of control, there are basically seven ways to deal with it. They are:

• Cut deals with your creditors
• Borrow money to pay off high interest debts
• Consumer credit counseling
• Bankruptcy
• Debt Consolidation
• Balance transfer
• Budgeting

The only “instant” solution

The only way you can get rid of unsecured debts such as credit card debt quickly is by filing for a chapter 7 bankruptcy. You can find lawyers who will handle a bankruptcy for $500 or less and, in most cases, it will get you free from most of your debts in six months or less. Five of the other options won’t eliminate your debts. They’re just ways to move your debts from one set of creditors to another.

Budgeting

The seventh way to manage debt is budgeting. It will take time and some self-discipline but it’s the only way to totally eliminate debt without having to borrow more money and without ruining your credit for 10 years as would happen if your filed for bankruptcy. If you have the right attitude, budgeting can actually feel good as you see yourself getting closer and closer to your goal of becoming debt free.

Getting started

The first step in creating a budget is to determine your current monthly spending and then compare it to your income. You will probably have to track your expenses for a month to learn how much you’re spending in such categories as food, transportation, housing, clothing, utilities, insurance, leisure and entertainment, education and so forth.

Compare this with your monthly income

Step two is to subtract your monthly income from your total spending. This will tell you how much you need to reduce your spending to stop piling up debts and start paying them down. Suppose for example that your monthly income (after withholding) is $2000 but you’ve discovered you’re spending $2,500 a month. In this case you would need to trim your spending to around $1,800 to cover your monthly expenses and have $200 left over to pay down your existing debts.

Where to cut?

Now, go back to your list of monthly spending categories and review each one to see where you might make cuts. There are no hard and fast answers to this but there are “soft” categories where you should be able to reduce your spending. These usually are ones like entertainment, clothing and food. I call them soft because it’s often possible to make cuts in them vs. “hard” categories such as housing, insurance, utilities and etc., which are pretty fixed.

Don’t make yourself crazy

One mistake some people make in creating a budget it so make one so restrictive they go crazy trying to stick with it. You should leave some room for entertainment or for the occasional impulse purchase. If you don’t you could find you’re constantly failing to stay within your budgeted categories and end up just jettisoning the whole thing.

Stick to that budget

Of course, the hard part is sticking to that budget. One good tool that can help is to put everything on a spreadsheet so you can see that you’re staying within your budgeted categories and that, most important, that you’re making good progress on your goal of becoming debt free.

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