There are a lot of different tools, resources, and methods available to help us budget. What’s interesting, is how incredibly hard a budget is to review on a regular basis, so it can make a proper impact. Yes, there will always be challenges – whether it is living in the moment rather than thinking about the future, an unplanned expense, a health emergency, a treat for the kids, the attitude of “I deserve it” or just not keeping track so you can get ahead, there are a lot of considerations that can get in the way.
Here is the interesting piece of the puzzle: having and sticking to a budget has benefits that do not always factor into people’s thinking. Peace of mind is at the top of that list as well as having the ability to save a little for emergencies, reduce debt (and anxiety), and thinking through some of the bigger goals like home purchases, college for kids, and retirement. A budget can make you feel confident, free, comfortable, in control and happy. It may not be the easiest exercise to go through and yes, it will take discipline, but the benefits are well worth the effort.
We recommend you begin by identifying your starting point.
- Is your debt growing?
- Do you have an emergency fund for those “just in case” scenarios, and is it enough? We have a three month, six month and nine month scenario we can share to help you plan.
- Are you now in a position to pay down your debt?
- Have you finally reached the point where your money is able to make you more money?
Many of us start in the growing debt section. This is when credit cards can become dangerous. High interest rates and low monthly payments can create an amazing amount of interest expense over time. In fact, a $5,000 credit card with a common interest rate of 18% with a minimum payment of $200/month would take ten years to pay off and the interest rate would be a whopping $ 2,650.75. Now it is not to say, when used properly, credit cards do not have their perks… they can help you build credit, and many offer a variety of perks. That said, we encourage you to figure out when they are appropriate to use, avoid multiples, put off purchases you do not have the resources to pay for, pay attention to interest rates and pay them off every month if you can.
If you are feeling budget ready, the next area of encouragement is understanding what technique you currently follow. Are you using a tech platform like Personal Capital or Mint, manually journaling, using the age-old envelope method, doing monthly bookkeeping OR are you in a less ideal situation where it just kind of works out, someone else in your household runs it without your input, you’re using credit a bit much, robbing Peter to pay Paul or simply not spending a dime?
We urge people to budget for both needs (housing, utilities, food, transportation, insurance) and wants (entertainment, vacations, dining out, gym memberships and shopping). From there, we take a close look at the areas you can easily save or reduce costs:
- Commuting costs
- Dining expenses
- Credit card usage
- Shop smart – reduce, reuse, recycle
Use pay raises, bonuses, or any extra cash to:
- Increase your retirement plan contribution (Make sure you understand your plan! Is there a match, what are the costs, note the max contributions and SAVE!)
- Pay down debt
- Pay down mortgage
And last but certainly not least, a budgeting guide always helps. The illustration of automated dollars vs weekly decision dollars is listed above but email us at firstname.lastname@example.org for a formal template that goes into more detail.
Start with monthly take-home income; Review recent months of debit/credit transactions and list your spending; (Categorize and compare to ideal budget %); Indicate if it is an automated expense, or if it is one you make a daily decision to spend; Subtract Automated Expenses and Monthly Savings Goal from Monthly Take-Home income; Do some math to convert to weekly; Use daily journaling to stay below your weekly spending limit!
Budgeting can be complex, but it does not have to be overwhelming. Reach out anytime with questions.