Creating and Maintaining a Personal Budget
Budgeting is a difficult thing for many people. Most of us have at one point or another managed to create a personal budget. However, if you are anything like me following through with that budget is more difficult. So, here are a few tips that helped me not only create a personal budget but also maintain that budget.
Before you begin delineating how much money should go into each category in your budget start by determining where your money is currently going. Revisit the previous month and determine how much you are actually spending on your daily latte and noon time Big Mac. (Or begin this month to track your expenses.) Divide your expenses into categories: housing, transportation, insurance, household, medical, and entertainment as well as savings and debt.
Housing would include your rent or mortgage payment as well as utilities and the garbage bill. Transportation would include car payments, gas, maintenance cost and car insurance. While insurance would cover all other insurances. Household costs include groceries, clothing, internet and telephone as well as a variety of miscellaneous expenses. Medical would include the co-pay for doctor and dentist visits as well as the cost of any medications. Entertainment would include dinning out, going to the movies and the family vacation. You might find it easier to create (and trim) your budget if you subdivide your main categories. Quicken has a budgeting feature which will allow you to categorize your spending or you could use a simple Excel spreadsheet like the one below.
After you've determined where your money is going it is easier to see where it needs to go. It is also easier to maintain a budget created based on an actual analysis of what's being spent. Obviously mortgage/rent costs don't change so it is best to start your budget there.
If you have a goal of paying off debt I suggest you start with the smallest amount of debt. (Some people recommend that you start with the highest interest rate-but the budget is harder to maintain if that is also your largest debt. You wont have the satisfaction of paying off a debt to help keep you motivated and on track.) Even if you can only afford to pay an extra $5 each month you will sooner pay off that lower amount. Then you can use all that money to apply to the next largest debt.
For example if you have three debts with payments of $133, $204 and $196 and the $133 payment is for the smallest total debt. Apply your additional $5 to that payment paying $138 each month. Then when that debt is paid off you can pay an additional $138 toward the next debt. Thus you would now be paying $342 instead of $204. And when that debt is paid off you can apply all that money toward the last debt paying $538 instead of $196.
When trimming your budget it is easy to trim money from the entertainment section with the plan to make extra payments toward your debt. However, if you change your entertainment costs to much (or worse still try to cut it out entirely) you will find it difficult to maintain your budget. The lifestyle change required will be difficult if not impossible to maintain. (The only way this might work is if you are dating and your significant other is footing the entertainment bill. I actually saved quite a bit of money when I was dating.)
Another area you can trim is the food bill. Try eating out less. Pack your lunches or buy pre-made lunches from the grocery store. Pre-made lunches often only save you a small amount of money, but the food is better for you and over the entire month the savings add up. If all you saved was 50 cents with 20 work days a month that adds up to $10 a month and $120 a year. (For more tips about saving money on your food bill please read my Hub addressing that subject.)
Other areas that can be trimmed include clothing costs and transportation--even utilities can be trimmed to some extent. Skip the name brand clothing. Visit a local thrift store. Join a car pool. Avoid the led foot syndrome while driving. Consider a phone plan with less minutes. Fix leaky faucets before they drain too much money from your wallet. Take shorter showers. Recycle.
There are a million ways to cut expenses. The key is to choose a few ways to cut expenses that while work for you. If you can't function without your morning shot of caffeine then don't cut your latte money entirely out of the budget. Consider instead a smaller cup or maybe a less fancy kind of coffee. Or choose to cut back on video rentals so that you can keep your morning lattes.
Even if you only manage to trim a few dollars from your budget, simply living within your means and paying off your debts will eventually get you back on track. Remember once that last debt is paid off you will have an additional $538 to play with. That will buy quite a few lattes and movie rentals.
So first examine your expenses and where your money is going. Then plan a budget that stays within your means and pays down debt with as limited a change to your lifestyle as you can manage. The larger the lifestyle change required the more difficult the budget will be to maintain. Good luck.
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