How to create a simple, easy to follow budget.
I know, I know; a budget; everyone has a budget. Everyone has bills to pay and everyone has a way they pay them. A lot of those ways work, and some of those ways do not work. I have created a very simple, easy to follow budget that will help everyone to get on track with their bills along with a list of things you can do to make the burden a bit easier on yourselves.
Some things that might affect your budget:
First, let’s look at some of the things that affect our budget without us even realizing it. Every month we get a bill for the car payment, the cable bill, the phone (no matter which one you have cell and/or land line), the car insurance, the rent and probably a loan or two that you might have (credit cards, personal loans, debt consolidation loans, etc.). And these things are paid every month and we actually SEE them every month and figure them into our budget. But how about the small things that we don’t see on paper; the little things that add up quick but we never think about? The following are two examples:
The newspaper we buy at the newsstand every day on the way to work so we can keep up with what’s going on in the world. These usually cost, on average, 50 cents to $1.50 per paper. When you add that up it comes to .50 x 7 days a week (since you usually buy one for Saturday and one for Sunday so you don’t miss anything) x 4 weeks a month = $14.00. I hear you all saying “well, that’s not very much ”. Do you get magazines, tabloids, sports updates, or weekly financial papers as well? Take the $14 and multiple it by how many of those you get---say 5 or 6--that’s another $84.00. Does that figure get your attention? How about the coffee you get every morning on the way to work; and the one for your break; and maybe one on the way home from work? If you get a large, that’s about $2.50 a cup x 3 cups a day x 7 days a week x 4 weeks a month = a whopping $210.00!
Here are a few more items you might want to consider: lunch every day, groceries for the week, laundry (you do yourself or dry cleaning), gas for the car, repairs and taxes for the car, clothes, gifts for family and friends, entertainment like movies and music, those little extras that make life so much easier or more fun like a bottle of wine now and then or the chocolate cream pie you just had to have, the stamps for mailing bills and/or cards, the envelopes you need, the paper you need, the bottled water you get when you are exercising, the gym expense, dinner with friends on the weekend, the concert you’ve been wanting to see, the tickets to the home team game, the vitamins you take to keep healthy, …..there are so many more but we’ll just leave the rest of the list up to you. I’m sure you can come up with thousands more that I didn’t mention here, but you get the idea of what I’m saying. When you create a budget you need to think of EVERYTHING that you spend money on so you can account for it. You could even roll all of those little extra things into one lump called entertainment and put extra money away for them. But never forget they are there and they will affect your budget. (Another quick tip would be to revisit the extra’s list at least once a month and make sure the list and the amounts are accurate since they often change with each day that passes.)
Now that we have gone over some of the things that get missed in a budget, I’d like to talk about the budget itself. Take a few moments to list everything you have to pay for including all of the little extras we just talked about. Be sure to note whether you pay for the item daily, weekly, or monthly. Then go back and work out what the items would cost monthly (multiply the amount by 7 days and then by 4 weeks for a monthly figure). Check your figures carefully and be sure everything is listed. Then put it away for a few days. Let your mind forget about it for a bit; then go back and look it over once more. Did you forget something? Did you use 6 days but only get the item 5 days each week? Ask yourself if each item listed is accurate.
Once you are sure the figures are accurate, add the totals of these items together to determine exactly what you spend each month. Now divide this amount by 4 (4 weeks in a month) to determine how much you need each week. This is the amount of money you will need to take out of your paycheck each week and put somewhere safe until a bill comes due. At that time, you take the money out of its safe place (for the amount of the bill only) and pay the bill keeping the remainder until another bill comes due. I always round up any change to give me a bit of a cushion when bills are higher than expected.
I will give you an example of how this works for easy reference.
- Item amount
- Rent 500.00 monthly
- Car Insurance 250.00 monthly
- Food 75.00 monthly
- Coffee’s for work-2.50 x 3 a day x 7 x4 210.00 monthly
- Lunch-10 a day x 7 x 4 280.00 monthly
- Electric 50.00 monthly
- Newspaper .50 x 7 x 4 14.00 monthly
- Total 1379.00 monthly expenses
- Divided by 4 = 344.75 weekly expenses
- Week 1 put aside 345
- Week 2 put aside 345
- Week 3 put aside 345
- Week 4 put aside 345
- Total put aside 1380.00
It may seem redundant to calculate for a monthly expense and then re-divide by 4, but some of those items are not paid weekly only monthly so you need an accurate figure of what you need monthly. Then when you divide by 4 you are creating an accurate figure that will add up to the total you need at the end of each month. When the month is short, try to put extra in during the weeks before the short month (we know which one we mean, right) and if the month is long (5 weeks instead of 4) tuck the money for the extra week away anyway. That way you have the extra cushion for the short month and those extras you wanted.
Putting the amount safely away for when the expenses come due:
A budget like this is extremely simple and very easy to manage, as long as you don’t touch the money you put away except for recorded expenses. To do this you can do several things. You could store the money in a lock box until needed or you could lock it into a file cabinet (not too safe, but you can’t spend it right away). If you have direct deposit, you could set up a savings account and have the bank automatically remove that amount when the direct deposit comes in. The money is put into the savings account before you even see it. If you have a checking account you can do a few things--you could remove the amount from your account balance and keep a record of it in the back of the check book or in a separate register. Or you could write yourself a check each week and put the check in a safe place (you might want to void the check after writing it in case it is found by someone). That way the money is removed from your regular balance, but is actually still in the account until needed. Everyone has their own way of doing this and I’m sure you can come up with the best way for you. Just don’t forget to put the money away so that when those expenses creep up, you will be ready.
The more you put aside, the easier it will be for those unexpected expenses such as you car breaking down or your coat getting a large tear and needing replacement. Consider putting any change you have away for a rainy day. Change adds up quick and won't hurt your pocket much except by reducing the amount of weight you carry. When you turn it in, though, be sure to go to your own bank. That way you won't have to pay a fee for changing the coin to dollars.
Ways to reduce your spending:
Sometimes our monthly expenses are more than we make each month. This happens often, especially in a bad economy. The best way to handle this is to find ways to reduce your spending. The most obvious way is to find cheaper housing and find people to share the expenses with you. However there are other ways. I have listed many of them below. Take a moment to look them over and try a few of them. You may not see an immediate difference, but the change will come. Before you know it, you will be stowing away the money and not using as much because you have reduced your spending. What to do when that happens? Take a much earned vacation!
I know you all want to look like the guy/gal with all the best of everything, and you can and still save money. Check out the list below for some ways to reduce your spending, in some cases improve your health, and still look like you have the best of everything:
- · Check your bank statement for fees such as service charges for the account, ATM fees, usage fees, check fees, etc. Check with your bank on ways to reduce or eliminate these fees. Many banks have fee-free checking if you do something like direct deposit or maintaining a balance. Those fees don’t seem like much each month, but they add up at the end of the year. Also, bank on-line as often as possible to save the cost of a stamp when paying bills.
- · Shop at second hand stores-you will be amazed at some of the deals you can get. Sometimes brand new clothes with the tags still attached are sold at a quarter of their original price. Furniture can often be acquired cheaply especially if you watch for the special days where discounts are higher or certain items are 1/2 off. Be sure to check for stains on clothes and tug on seams to be sure they are still strong. Make sure the furniture is still in good shape (don't mind the scratches, those will happen just bringing the item into your apartment/home).
- · Do you get a large income tax refund each year? You might want to resubmit your tax forms at work. (Filing Single takes out the most, Married takes out less, the more exemptions you claim the less they take out, if you decide you want less taken out you can choose married and 1-2 exemptions, but be careful because you may change it to the point where not enough will be taken out-the best way to do this is a little at a time. Adjust your form for a week or two and see how much is taken out. If you are unsure of how much you might need for your income tax you can go to the IRS site (see link below) and check the tax tables, they will tell you approximately how much you will need to have taken out). If you change your status on the form causing your tax liability to be smaller, your take home pay will be larger. Yes, that large refund at the end of the year is great for getting all those little things you want, but you don’t earn any interest. If you take that same money each week and put it into your savings account, you will earn interest on it and have more to spend. (Don't forget the state and any local taxes you might owe, you can reduce them as well-be sure to check with your state's tax charts to be sure you don't reduce it too much, penalties and fees come out of your budget, too.)
- · Paying a lot for your cell phone? Consider stepping down the service to a pay as you go service. With such a service, you only pay for what you use and you don’t risk losing minutes at the end of each month. Often you can reduce your monthly bill from several hundred to about $75 depending on how much you use your phone.
- · Do you use your cell phone for all of your calling needs? Consider having your land line removed. You could save hundreds of dollars by removing a line you’re not using.
- · Do you get cable? Consider reducing the amount of access you have to basic service especially if you aren’t home much and don’t watch the TV a lot when you are home. Also consider looking into subscriptions or movie rentals for the movies you want to see rather than using the expensive movie channels.
- · Consider your internet service. Can you get it cheaper from another source? Could you bundle it with a company you already use to get cheaper rates?
- · Check with your credit card companies to see if you can get a reduced finance charge. Check around with other companies for better rates and consider transferring your balances to the lower rate company. Many companies offer huge incentives for people who transfer their balances from other cards like lower or no interest rate for the first 6 months. Be sure to check the fine print on any credit card or loan you might be considering. Avoid using the ones with hidden fees like ATM usage or monthly charges for having the card.
- · Compare rates of other insurance companies for your car and check to see if you can bundle coverage like home/auto/life. Insurance companies often reduce rates when you bundle your coverage.
- · Consider reducing your daily coffees to just one, or even make your coffee at home and bring it with you in a thermos.
- · Consider bringing your own lunch to work. By making your own lunch you reduce the amount you spend by half or more. Plus you can bring things that are healthier for you like fruits and vegetable sticks for snacking.
- · Consider getting a filtration system for water and then filling your own bottles for your workouts or to bring to work.
- · Have a long drive to work every day? Consider taking advantage of car pooling. There are companies out there that do car pooling professionally or just get with your co-workers and share the ride and the expense.
- · Are there things that you use a lot of? Consider buying in bulk to save money. (A shopping club like BJ's or Sam's Club is great for bulk purchases as are stores on-line.) Don’t think you can use that whole can of pickles or the entire giant jar of mayo? Well, get with family and friends and share the cost and then split it up. Everyone will save money that way.
- · Watch for sales and take advantage of them.
- · Use coupons as often as possible. (If you are going to buy the Sunday paper anyway, why not take advantage of the coupons that are usually there?)
- · Turn off the lights and the equipment when you are not using them to reduce the electric bill; also, buy energy efficient whenever possible. Check your electric rating on your bill. If your apartment is fully electric, contact the electric company and have them put you on rate 5 which is a lower rate given to customers who have all electric homes.
- · Turn your heater down to 65 degrees while you are out of the house in the winter, and turn your air conditioner up to 70 degrees when you are out of the house in the summer. Wrap your water heater for insulation and wrap exposed pipes to prevent freezing and bursting in the winter.
- · Get your oil changed on time and have your car winterized and summerized by a professional mechanic. This makes your car run better and thus more fuel efficient. It also helps reduce those pesky breakdowns.
- · Check your tire pressure often to ensure you have the pressure that is recommended for your car. Proper tire pressure ensures better gas mileage and a smoother ride, but it also keeps the tires at peak performance so you maintain a good tread level for a longer period--don’t forget to rotate your tires every 6,000 miles as well.
- · Slow down and drive at a steady constant speed. By driving at 55 you save 20% more on fuel than if you drive at 70 miles per hour. By staying at a constant speed, you reduce the drag on your engine as well as reducing the ‘ups’ and ‘downs’ of speed which increases your fuel usage. Also, drive steady on the highway as opposed to the ‘stop and go’ of city streets. You will get better mileage that way.
- · Take a bus to work? Consider getting an annual pass rather than paying daily. A daily fee of $1.00 by 7 days by 52 weeks is $364.00. Annual passes usually run about $50 - $150; a big difference.
- · When you are at work, don’t buy a new bottle of water when you need more, go to the water fountain and re-fill it there.
- · Park your car in the free parking lot a block or two from your office building and walk to the office rather than paying to park in the garage. (Not only will you save money, but you will also get fit.) You can skip this step when the weather is real bad, after all, you deserve a break once in awhile. (If you have to park in the garage or a lot that you have to pay for, ask about purchasing a pass, it's usually cheaper than paying daily.)
- · Read news and financial information on-line rather than purchasing a paper each day.
- · On those hot but not steamy days, consider turning off the car air conditioner and opening a window instead. The air conditioner causes the engine to run hotter which can cause your car to overheat, but it also can cause your engine to work harder and thus increase fuel usage.
- · There are so many more out there that I haven’t even touched on yet. Put on your thinking cap and mentally run through your day. Think about the things you get and use -can you do it cheaper; can you skip it altogether; can you share the item and the cost with a friend? Get crazy with it, you’ll be surprised at what you think of that never even occurred to you as an expense like that stick of gum you chew after lunch so you don't have garlic breath.......
© 2012 Cheryl Simonds
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