Budgets and bookkeeping have always come so easy to me. I had planned to be a CPA, but life kind of got in the way.
What is a Budget
A budget is basically writing down (or knowing) how much you spend for each bill and/or expense that you have, how much you get paid and whether or not you can afford what you are spending. Yes, it really is that easy. So why all the fuss? Because we don't always keep our spending balanced with our pay checks. Often, the weeks a bill doesn't come in is thought to be a week of 'let's party'. However, next week all the bills come in and you have already spent the money on 'partying'. My budget is nothing more than determining what you spend every single week or month and then putting that money away each pay day--before you party. Then, when the bills and expenses are covered, whatever is left can be used as you wish. Many like to put it away for retirement, but some buy things they have wanted or needed. That choice is up to you because it is your money.
"Oh, you want us to create a budget? Now?"
Total amount of budget expenses ($400) divided by number of weeks in a month (4) = $100 to be taken out of your pay check and put aside each weekly payday. The rest of your check is yours for whatever you need or want.
If you are paid monthly, then the $400 would be the amount coming out of your paycheck.
Creating The Budget
Take a few moments to list everything you have to pay. 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 until tomorrow. Let your mind forget about it for a bit; then go back and look it over once more. Did you forget something? Is it accurate? Did you really include everything? Skimping only means you are shorting yourself.
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 one of those bills 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 for when bills are higher than expected.
What a budget might look like
|Item||Amount Per Week||Amount Per Month|
Divided x 4
Be Careful of Pitfalls
The budget seems real easy, and it is; however, there can be pitfalls, especially if your paycheck doesn't make it to the end of your budget. There are so many things, that most of us don't think about, that can affect your long-term and short-term budget. Things like a coffee on the way to work or buying lunch everyday. Even your time with friends can cost money. These costs add up fast and can take a real chunk out of your budget. Take a day or two and a small notebook to record everything for which you spend money during the day. Be sure to include everything you spend money on, even if it is only a quarter, because the money can add up fast. Once you know what you spend on extra items, you can chip away those extras that aren't really needed.
How The Budget Works
- You get paid and remove the budget amount from your check and put it in your safe place.
- You use the rest of the money for lunch, coffee or entertainment for example.
- A bill comes in; you remove the exact amount needed from your set-aside to pay the bill.
- You still have money put aside for your other bills.
- You get paid and still remove the budget amount from your check.
Don't get caught in the trap of--I didn't get any bills this week so I can use that money. Or I'll just pay the bill from my check and then I don't have to account for it. Putting the money aside no matter what will mean that you have the money for each designated bill. Don't use it for anything else.
What To Do With The Amount You 'Put Aside'
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
- 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). The money is removed from your regular balance, but is actually still in the account until needed. This one is a bit less safe because you can easily access the money when you are out and about. It is also a bit confusing, I don't recommend this one but 'to each his own'.
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.
Items That Can Be A Pitfall
- Food-a number one necessity that is rarely included in our budget; most people just use what they have left over rather than trying to make a menu and buying only what they need. Try using coupons and making your menu according to the weekly sales. Coupons can be found on-line, just look for them.
- Don't forget those snacks that seem to call to you all the time-one quarter twice a day for five days comes to $1.25, not much until you figure it for a whole month. Skip them and take your own snacks to work with you. This can also mean you can take fruit for a snack. It is rare to see fruit in those vending machines.
- Daily newspaper and magazines--yes we do need to find out what is happening in the world; however, today we have electronics and the internet. If you already have a device and the internet, and you want the news, go online to get it. That way it doesn't cost any more money.
- Coffee on the way to work, during your breaks and on the way home-coffees can break your bank when you calculate the cost. Try making your coffees at home and bringing them in with you. Coffee shop coffee can run up to big bucks, but you buy coffee as part of your food budget. Once you have reduced your costs, you can reward yourself with a coffee shop coffee.
- Lunch every day-I know you have to eat, but try bringing it in rather than spending a lot of money at a restaurant. Bringing a lunch to work every day can mean more health conscious food.
- Going out at night-night club, dinner, movie etc--entertainments are completely necessary for our sanity, however we need to keep the costs to a minimum so that we don't overrun our budget leftovers. Make sure you know your limit and go home once that limit has been reached.
- Car expenses such as: gas, oil changes, tires, engine repairs, etc--These things will nickle and dime you to poverty. But some things can't be helped. Shop around for the best price and ask family and friends who they go to for their car care.
- Electricity-no one thinks about the electric bill until it comes in, but there are ways to reduce that bill. Turn off the lights when you aren't using them and plug electric appliances into a surge suppressor that is turned off each night. The only one I would not do use this method for would be the refrigerator; vacuuming it underneath can help the motor run more efficiently which would save money.
- Cleaning supplies-clothes detergent, dryer sheets, softener, floor cleaner, cabinet cleaner, toilet cleaner, window cleaner, dish cleaning supplies, duster and miscellaneous items--a bit much to list, I know, I just wanted to remind you they are needed as well, or you can use ammonia or vinegar and lemon to clean most of your things.
- Personal supplies-deodorant, shampoo, body wash, cologne, toothpaste, toothbrush, toilet tissue, brush, comb, under things etc.--yes, we will all need to get those at one point or another. Try to use store brand to save money. And don't forget those coupons.
- Holiday gifts such as birthdays-I have found that I need to budget for holiday gifts or there won't be any gift giving for me. Just a few dollars a week can really add up.
- No washer or dryer means extra cost for a laundromat--we don't think about that until it comes to pass, but doing your laundry, even at home can cost money.
- If you have pets-food, supplies, vet bills--try to use store brand when you can.
And You Run Out of Money
Why So Many Budgets Don't Work
Here is the big reason many budgets don't work. You add up all of your expenses and then begin taking money out for the up-coming bills. Some may come this week, some next week and some just once a month. That means that you can build up quite a bit of money by the time those bills roll around. But we often see things we want or need, like Sally needs a new pair of shoes or you find the game for which you have been searching. The bill money sits there and is so tempting.
Often, we use the money for other things while telling ourselves that we will put the money back next week. However, that money rarely gets put back into the bill fund. This means that in one move, the budget is gone. Plus, once you have used some of the money, it is so easy to use more of it. Was this a good choice? No, but you could have avoided the moment by putting extra aside for those items. How? Round everything up before you put it aside. For example: Your car payment might be three-hundred-seventy-five dollars each month. Put three-hundred-eighty dollars or even Four-hundred dollars into your budget money. When the car payment comes in and you pay it, you will have a little extra for the unavoidable things. But don't use that extra until you really need it. Who knows, you might build up enough to get that new car you wanted.
- Find out what you spend per month for everything.
- If you get paid weekly, then calculate the bills for a week. Do the same for if you get paid monthly.
- Take the money out of your pay religiously so you are always on top of the expenses.
- Pay a bill when it comes in to avoid late charges.
- Reduce those little extras like coffee from the coffee shops or lunch everyday at a restaurant.
- Try not to use the money for something else.
© 2012 Cheryl Simonds