Wednesday, July 28, 2010

Budget Basics

The economy stinks! How many times have you heard this or said it yourself? Tough times are here and having a household budget helps immensely.

Ten years ago, when I quit my job as a medical technologist, I had to set up a very strict budget to prove to my husband that I could afford to quit work. At the time we were raising 3 children. I set up a budget we could live with and have stuck with it to this very day! Here is what I did:

I bought a notebook and pulled out our old check registers and analyzed where our money went. I did pages of utilities, groceries, insurance payments, taxes -everything we spent money on. Then I started making lists of what we needed to pay for and what we really didn’t need. In the beginning, I had to cut it down to the bare necessities. I cut out entertainment, meals out, and other unnecessary purchases. Then, I worked out a budget based on when we got paid and when our bills were due. I bought another notebook to keep track of our expenses.
We get paid twice a month. The first paycheck must cover groceries and miscellaneous for two weeks, car payments, utilities, and credit card payments. The second check must cover groceries and miscellaneous for the last two weeks of the month, the mortgage payment and the three savings accounts that I have set up to cover taxes and insurance, Christmas and birthdays, and retirement. Most of our health and dental expenses are reimbursed through a flexible spending plan set up by my husband’s employer.

You have to exercise discipline and planning but budgets really work. You can’t consistently overspend and you have to be diligent and creative. Currently, we have an excellent credit rating and are credit card debt free. Our cars are paid off and we are putting our last child through college using the money we would be spending on car payments. We can even afford to take a nice vacation every year.

Most experts advise people to live within their means. Know how much money you take home and plan accordingly. Reduce wasteful spending such as magazine subscriptions, movie rentals, meals out, and impulse shopping. Evaluate each purchase to see if you really need the item and are getting the best deal.

Here are a few helpful hints to get you started:

1. Credit Card Debt: STOP using credit cards immediately. Minimum payments are a necessary expense and should be put into your budget. Try to pay more each month on the card with the lowest balance until you pay it off and then apply that amount to the next lowest until you have them all paid off.

2. Grocery and miscellaneous expenses: This includes food, sundries, gas, meals and snacks out, dry cleaning, and other small expenses. Calculate what you need or can afford to spend in this area. It may help you to manage these expenses by using cash only. That way, when you run out of cash, you are done spending until next paycheck. Also, cash can be further divided up if you want to allocate some of it to different things or spit it between yourself and your spouse.

3. Think of your budget as a game you are playing. Strategize how you can save more money each month.

4. Research ways to save money by reading articles on the internet and at the library. When I first started out, I read a whole collection of books from the library written by Amy Dacycyn called the Tightwad Gazette. Check with your employer about money saving plans like the flexible spending accounts and other pre tax deductions.

Caution: There are many wonderful websites devoted to budget planning on the net but use good judgment and do not give them too much personal information!

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