If you’re like me, when you hear the word “budget” you want to plug your ears and go “lalalalala” because the thought is just so dull, or possibly intimidating. So I learned the hard way what happens when you don’t bother to budget. I always thought of myself as frugal. I love bargain hunting and cheap deals that you can find on sites like this one. I know how to pay the lowest price. But until I sat down and put a spending plan on paper, I didn’t fully know where every penny of my money was being spent, and my wallet felt squeezed. So I knew it was time to buckle down.
I tried some popular software like Quicken and Microsoft Money. They’re fine products, but just too darn complicated if all you want to do is create a simple budget. Fancy financial software is fine for those who want spend the time to download every banking transaction, monitor investment portfolios, and create pretty charts and bar graphs. But it’s like buying a racing bike for a kid who’s still using training wheels. There also are sites such as Quicken online, or Mint.com, which pull in your bank account data, but I’m not comfortable with the security issue and anyway, it still won’t track the cash you spend out of pocket.
So after scouring the web, reading books, and playing with MS Office, I figured out a more painless approach to share with you. Here it is, step by step:
1. TRACK CASH SPENDING
Okay, this part will be a little tedious – but it’s not difficult, you only have to do it once (unless your circumstances change) and it’s absolutely necessary. You’ll be amazed to find out how much cash you spend every week, even if you think you’re being thrifty.
Get a small, pocket-sized, lined notebook, or you can buy pre-printed expense notebooks or forms from your local office supply store. Just make sure it’s something you can fit in your pocket or purse at all times, and attach a pen to it. If it’s not a pre-printed form, then write down headings for “date”, “description”, and “amount”. Then, write down everything you spend for a month, yes even a pack of gum. If you’re not patient enough to do a month, then do this for one week, as long as it’s a fairly typical week for you.
2. PICK YOUR BUDGET FORM
If you have Microsoft Excel, then I highly recommend doing your budget that way. Just open Excel, click “new”, and look through the list of template styles. You’ll see a heading for “budget”. Click that, and you’ll see a choice of pre-programmed and designed budget forms. Just use the one that you find easiest to look at and understand. All you need to do is enter data and it will do the calculations for you. Or, you can find downloadable Excel budget forms online. You’ll find Mac versions at: http://www.microsoft.com/mac/templates.mspx?ttid=3 and Windows versions at: http://office.microsoft.com/en-us/templates/CT101172321033.aspx
If you prefer the pencil and paper method with a simple, printable form, try one of these:
http://www.betterbudgeting.com/budgetformsfree-basicbudgeting.htm or http://www.foxway.com/worksheet.html.
3. FILL OUR YOUR BUDGET
Assemble the following: your cash spending records from step 1, your checkbook register or a recent bank statement, a current pay statement or other income records, and your current bill statements. You’ll also need a pen or pencil, and a calculator.
Now, start entering figures in the appropriate boxes. Some boxes will need to be subtotaled, i.e. if there’s an “entertainment” category, you’ll add up what you spent on movies, concerts, shows, etc. If you only kept a week’s worth of cash expense records, you’ll need to multiply your numbers by 4.3 (number of weeks in a month), to obtain monthly figures. And if any other income or expenses are not monthly, again, you’ll need to calculate a monthly figure.
One little trick: if you get paid every other week, then calculate your income as being two paychecks per month. There are two months of the year when you will receive three paychecks – but those extra two pays will become an painless automatic savings and financial cushion for you. Nice, huh?
4. REVIEW YOUR BUDGET
Add up all expenses and subtract from your income, or if you’re using Excel, the program should do this automatically for you. Now, what did you find? Are your expenses exceeding your income? Or are you cutting it too close for comfort? If so, it’s time to make some changes. Shop around for cheaper phone plans and car insurance. Refinance your home loan if necessary. Cut out the premium cable channels. Eat out less. Get a second job. Get a roommate. There are many, many ways to save money; check out the other useful articles on this site.
5. CRACK DOWN ON CASH SPENDING
Once you’ve tweaked your budget and cut down your spending, figure out how much cash you need to carry around. I’ve found the envelope system to be a foolproof easy method to keep cash spending in line. Do this by reviewing your budget categories and seeing which categories are usually paid for in cash out of pocket. Add up those numbers and determine a monthly cash amount, then divide by 4.3 for a weekly amount. This is the amount you withdraw in cash each week. Get a bunch of little envelopes and mark each envelope with the category and budgeted amount. Apportion your weekly cash among those envelopes. When you’ve spent all the money in the envelopes, that’s it, no more spending for the week. If you carry a wallet and don’t have room for envelopes, you can use pieces of scrap paper as dividers; mark them with the categories and amounts, and put the paper dividers in your billfold.
Good luck – and remember to review and update your budget if you have changes to your expenses or income.
Photo Credit via Flickr