Having a little sticker shock after Christmas? If you’re like most Americans, January often becomes a month of reflecting on finances and planning for the new year. We all know couponing can help us keep our grocery budget intact, but what do you do to control the rest of your spending?
Budgets are a fantastic way to organize your spending and give you a realistic idea of where exactly that hard-earned money is going. Most people are surprised how much cash they can free up by just visualizing the in goings and out goings of their money. My hope for this post is to give you some simple, helpful tips to keep your finances on track for 2013.
Start by writing down what I call the “absolutes”. This is specifically those things you have to have to be fed and warm on a daily basis. We want to make sure these are paid every month.
- Mortgage / Rent
- Natural Gas
- Food (Purchased at the grocery store)
Write down what these cost you monthly, multiply by 12 and divide by 26. If you are paid every two weeks, this is how much you need to set aside per paycheck to ensure these needs are met. (I suggest you break them further down into categories so you can make adjustments as needed.)
Now write down everything else you spend money on:
- Laundry Detergent
- Cell Phone
- Credit Card
- Clothing/Dry Cleaning
- Fast Food
- Life Insurance
- Pet Food/Care
- Charitable Giving
- Car Payment
- Car Insurance
- Car Licensing
- Car Repairs
It is important that you include EVERYTHING you spend money on and be very thorough in these lists. The best way to do this is to look at your bank statement for a full month and any credit card statements you may have as well.
All of these categories need to fit into what is left in your paycheck after you set aside your “absolutes”. Total up each for the month and use that calculation we just used above (number times 12 divided by 26) to figure your 2 week spending average for each category.
It should look something like this:
This example above is actually off an excel spreadsheet and has monthly expenditures listed. You can figure your 2 week calculations in a list like this, or have a monthly tally like this above and have the 2 week budget total automatically calculated at the bottom. Do whatever makes sense and is easy to use for YOU.
This total shows what this person’s minimum two week earnings are needed to fill all the obligations of the budget.
How you keep track of these individual expenditures is totally up to you. Some people choose to have multiple checking accounts to set aside that money that has to be paid monthly (mortgage etc…) to protect it from accidentally being spent. Some choose to cash their money out and divide it up per the budget in individual envelopes with the idea that once the money is gone, it’s gone. Some just keep really tight records on multiple check registers for each category to stay on top of their spending. Whatever you do, make sure it’s realistic and makes sense to you. (You will undoubtedly change how you do this a few times before you find something comfortable to work with.)
Now that you have all this handy info, you can start making adjustments as needed. Start by reducing those things you have control over. Some people will find minor adjustments will be fine whereas others may see the need to cut hard to get out of debt faster, or to keep from going further into debt. Whatever you do, set your budgets for each category realistically, prepare in advance for those things you know will be coming (ie: Doctors bills, car repairs), and keep a ledger so you know how much you’ve spent/saved for each one. Trust me, do this and you’ll be less apt to freak out when the dentist tells you you need a root canal and your insurance is only covering 80%.
Here are some ideas that may help:
Clothing: Wait for sales and prepare. Be willing to purchase school clothing and out of season clothing when it’s at rock bottom prices. Preparing in advance can save a lot of money in the long run!
Cell Phone: Is a family plan cheaper? Do you REALLY need a cell phone at all? Don’t always be afraid of early termination fees if you will save more than that lost in a half a years time. Also consider plans like T-Mobile’s month to month text only options at only $15 a month with no contract and no hidden fees. (And you can add a few extra bucks for minutes to use in case of an emergency.)
Phone/Internet: Negotiate with your provider. Many a time have I called to see if they could lower my payment and have been successful!
Gas: Try to consolidate your trips out and carpool if possible.
Utilities: Try the budget plan. Our electric has this as this option and our gas company allows for overage so you can overpay to offset the winter months later (hence, no surprises.)
Entertainment: Set limits (movie rentals, fast food, etc…) Try allowing one splurge in this category a month (within the budget of course) instead of many small ones.
Fast Food: Make your coffee at home and bring your lunch. You can save a ton of just this way alone. If you have to have your espresso, consider a prepaid card for the amount you budget to eliminate overspending.
Cable: This is a huge expense for some people. Do you really watch all those channels? Consider signing up for Amazon Prime’s Instant Video, Netflix, Hulu Plus or all of the above and shave off a large chunk of money. Or challenge yourself to see if you can go solely with DVD’s.
Make a goal and stick with it: If you are trying to free up cash and are in debt, make a goal to work that debt down by a certain dollar amount at year’s end. With all that money you’re going to free up within your budget, you can hit that credit card hard.
Be persistent: When the money is spent, it’s spent. If you find that you’ve set an unrealistic budget for a certain category, re-evaluate. You will do this often within the budget until you find a reasonable spending limit for each one.
Most importantly, whatever you do with this, make sure you and your spouse do this TOGETHER. Even if one of you isn’t fantastic with math, you should still be working this side by side so there are no surprises. Remember, this is supposed to be productive, not destructive!