A Beginners Guide To Budgeting
This can affect anyone who regularly runs short of money in the bank -- regardless of income
. Associated symptoms include sleepless nights, high blood pressure, fits of guilt, and denial. Before you get started, make the process more suspenseful and fun by jotting down how much you think you're spending on food, entertainment, travel, clothing, charity, investing, etc.
Then record how much you want to spend on them. That'll put everything that follows into perspective. This is where it starts getting tough.Look back at your bills over the past few months, and identify where your money went.
Don't worry if you can't account for everything you spent -- that's typical, and you'll catch that in the next step. For now, just look at what you're spending all your money on. If it's mostly going toward payments on bad debt -- things like credit card bills or car loans -- then you're starting out every month in the hole.
It sounds simple, but it takes a lot of work: For one to three months, record all your financial inflows and outflows. (One month will do, but a few more will maximize accuracy.) Try to account for big expenses that occur once or twice a year, such as car insurance, too.
Jot down how much they amount to per month. During this two- or three-month period, save every single receipt you get for any expense. If you don't normally ask for or keep receipts, do so during this period. Also, carry a small notebook to write down any cash transactions.
If you spend a few dollars for coffee at a local coffee shop each morning, record each such transaction. If you do some odd jobs for a few extra dollars now and then, record that, too. Make sure you're accounting for all your expenses.
Even a $12 check written for a magazine subscription should be counted. As you're classifying expenses, notice that some of them are fixed, while others are more flexible. After the information-collecting months are finished, sit down with all your records -- the big bunch of receipts, your checkbook, your pay stubs, credit card and bill statements, and that notebook of cash transactions.
You'll also want a pad of paper, a pen or pencil, and a calculator. Start making lists of all the inflows and outflows. Group them into categories and total the amounts for each item. For example, you might list all your eating-out expenses and all your supermarket expenses and lump them together in a "Food" category.
Then calculate what percentage of your income is spent on food. (Of course, if you fine-tune things more, separating supermarket and eating-out expenses, for example, that's even better.) Now, step back and see what you've got.
You should be looking at a fascinating detailed record of where your money comes from and where it goes. Compare your actual expenses with your initial estimates and see how close you were. Assess whether you're saving and investing as much as you want to.
If you're not happy with the results, the next step is to try to find expenses you can cut back on. Buy a water filter instead of endless jugs of bottled water. Use a fan instead of air conditioning.
You might be able to save a tidy sum by giving slightly less extravagant gifts. Also, don't assume that fixed expenses are completely fixed. You might be able to refinance a loan at a lower rate, or do a little comparison-shopping to turn up a less expensive insurance policy.
You might even discover that by spending less on some things you don't care so much about, you can spend more on things you care a lot about. With your budget under control and your future expenses anticipated, you should start to feel much better.
by: Jack Landry
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