Budgeting

“If you spend one more dollar than you earn, you WILL eventually go bankrupt.” ~ Rick Anderson, CEO of Citizens Credit Bureau~

How does one prevent spending more than they earn?.. by tracking were your money is going and how much is left to spend. People tend to be scared of the ‘B’ word when it comes to financing. ‘Budgeting’ is not about restrictions or spending money on only necessary things. It’s about dividing up your income, tracking your spending, and making room for those extra expenditures.

How can budgeting help you? Ever had those moments were you wonder were it all went? My sister began tracking her spending and realized that she was spending hundreds of dollars on her hair every month. When I was lifeguarding for a pool one summer I would buy a root beer freezy almost every shift. Sure it was only about $2.50, spare change, but assuming I worked only 25 times that month I spent $62.50! A gallon of ice-cream and a liter of soda cost around $6.

There are several different types of budgeting techniques. I will expound upon the “Rich off of any income” method. This method takes budgeting a little further so that you are constantly tucking money away for future expenses, such as changing tires on your car. That is a large expense that should happen only once a year; Instead of shelling out $600 on the spot saving a little bit every month will makes it easier to tackle.

The first step to budgeting is listing all of your monthly bills and their cost (rent, utilities, car payment, credit card payments, ect.).

• Add things necessary to live (food, clothing, medical, ect.).
• Add your categories that are not necessary but wanted (vacations, eating out, ect ).
• Add your financial goals (paying off debt, retirement).
• Personalize your categories. They can be broad (utilities) or specific (heating, electric, water). Some will have a category titled ‘extra’, for what little money is left, for anything that is not required to live.
• To apply the “Rich off of any income” method, you would then want to make sure that you had categories for those every-once-in-a-while expenses that money was being put into monthly.

Different ways to keep track of your budget include:

• Budget sheet- Keep track of your categories and amount of money allotted on paper. You can find an example of simple budget sheet on the LDS church website at http://www.providentliving.org/pfw/multimedia/files/pfw/pdf/72727_FamilyBudgetWorksheet_pdf.pdf
• Envelopes- Write the name of each category on an envelope; put the selected amount of money into each envelope. Spend no more on that category than what is in that envelope.
• Checkbook Registry- Keep a registry that includes all of your categories in your checkbook. When a purchase is made subtract the total from its appropriate category like you would when balancing your accounts. This allows you to rollover leftover balances into the next month. Add the new balance for the new month just as you would a deposit into an account.
• Microsoft Excel- This is my preferred method of tracking as you can program the cells to do the math of budgeting for you.

I enjoy budgeting and penny pinch where ever I can, therefore my budget is more complex including categories such as food storage, furniture, books, movies, ect. My sister, however, likes to go even further to budget how much will be spent on milk.

TIPS: Don’t make your budget so complex that it becomes a chore for you to keep up with. Track EVERYTHING including vending machines. You can track everything even if your budget is simple. Make realistic goals. Don’t just say “I am not eating out anymore”; give yourself a little leeway. Even if it is small amount, you are more likely to follow a little allowance than none at all. If your curious why you have spent so much in one category, try dividing it to see were the expense is coming from.

Don't think budgeting is worth your time? Try just tracking. Write down were you spend your money on a month to month basis. I did this for one year before I started budgeting and was suprised at how much mony we could have saved if we where just aware of were it was going.