A Primer in Budgeting
Have you ever reached the end of the month and asked yourself where your money has gone? Most people know their major bills – a mortgage, utilities, insurance costs and car payments, but they may not have a handle on where the rest of their paycheck goes. Some simple strategies can help you track your expenses, stop the spending leaks and prioritize your spending on what really matters to you.
Track Your ‘Mad Money’
You may want to start tracking your “mad money.” If you have never tracked your cash spending, you may want to start with the “envelope method.” When you take cash from an ATM or your bank, put the cash and a receipt in an envelope. As you spend the cash from the envelope, put the receipt for the expenditure in the envelope, or simply write on the outside of the envelope what the amount and type of expense, such as “$5 for fast food.” When the money runs out, start a new envelope for the new cash withdrawal.
At the end of the month, add up these expenses. You may be surprised to learn how much the smaller expenses accumulate. After experiencing success with this method, you may want to look for expenses that you deem unnecessary, and begin eliminating these. Many people also restrict the amount of “mad money” they allow themselves in a pay period, and when the money runs out, it is gone. They do not allow themselves additional withdrawals beyond their initial “mad money” withdrawal amount.
Find a Budget-Tracking Tool
What’s the best budget-tracking tool? One you actually will use. While you can find many spreadsheets available for budgeting purposes, look online and on your bank or credit union’s website for free budgeting tools. Most of these tools will, with a little added effort, categorize your automated payments and payments by check into major categories, such as mortgage, utility bill payments, insurance and groceries. These free tools will also provide you with reports that you can view and analyze, thereby allowing you to assess your expenses and eliminate unnecessary ones, such as subscription costs of magazines that go unread and premium cable services. Once you have a handle on where your money goes, you can move on to the next step of setting goals.
Set Financial Goals
I find the most satisfying part of budgeting to be setting and attaining financial goals. Start by identifying your financial goals, both short-term goals, such as making ends meet each month or saving for a new car, and long-term goals, such as saving for retirement. Using different bank accounts for different financial goals with regular transfers to those accounts can be very useful in meeting financial goals. Whatever goals you consider important, make sure you include personal savings and the accumulation of an emergency fund as one of your top priorities. Make sure to establish a time every month to review the progress that you are making toward your goals.
Budgeting Can Be Fun
Many people do not realize the fun and stress reduction that budgeting creates simply because they have never done it. Stopping the budget leaks with your “mad money” and getting a handle on your regular expenses will free you to start spending your hard-earned money on what really matters to you. Once you’ve mastered your budget, you will find that you are controlling your finances, rather than the other way around.