So you’ve decided to give budgeting a go. Hooray!
Great move, your wallet will thank you for that.
Now, where do you start?
It’s simple: grab a piece of paper and a pen or create a memo on your smartphone. If you want to go the fancy route, open an Excel sheet on your computer. You don’t necessarily need a budget spreadsheet. Whatever works best for you!
Next step: decide if you want to do a monthly, weekly or bi-weekly budget. Rule of thumb: decide based on your paycheck: if it comes on a monthly basis, do a monthly budget, if it comes bi-weekly, you get the idea.
Then: evaluate your income and expenses. By expenses I mean your debts, your bills, your needs and wants. You’ll have to look at previous months to make sure you don’t forget any category.
Your bills are fixed expenses: usually they won’t change (but if you think you’re paying too much for your phone, don’t be shy to give your phone company a call to see if you can negotiate your plan!)
Your needs are necessities, but they also can vary in cost: for example, the amount of money you spend for groceries. Food is a necessity, but you can definitely play with the number you allocate to it.
Your wants are…well wants. They are not necessary, although sometimes it feels like it. You will survive without that manicure boo-boo! And those shoes, you can do without for at least another month! Briefly, your wants can change overtime. They are variable expenses. That’s really where you have control.
Now that you have your numbers on a piece of paper…how do to implement your budget? Here are some of my budgeting money tips.
Most people tend to pay all of their bills first, then they decide what to save with what’s left of the money. No bueno! I say it’s best to treat you first.
Do you First and Automate
Treating you first means that, once you’re saving for a specific goal, as soon as the money hits your account, you put a portion of it into your savings account. This can be hard to do, that’s why I recommend using a pre-authorized, automatic savings approach. Basically, you set up an amount you want to save on a monthly or bi-weekly (or whenever) basis. Your $$ is taken out, without you even worrying about it, and is transferred to your desired savings account. As they say, out of sight, out of mind! Before you know it, you’ll have a stash of money pilling up! You can set up an automatic saving plan online, or call your bank adviser.
Get rid of debt in an orderly fashion
Once that’s done, you can now focus on paying your expenses. If you have debt, prioritize it. You can even do a pre-authorized payment plan too for that matter. Usually, it’s best to pay the high interest rate debts before the lower ones. That means your credit card or anything with close to 20% interest rate comes first. Try to pay more than the required minimum, so that you don’t end up in that vicious circle. If you already are in that vicious circle, call your credit card customer service to see if you can negotiate a lower interest rate. It works most of the time!
You can try to pay a portion of the lower interest debt too, but keep in mind, the higher interest are the big Pac-men eating your money up…You need to get rid of them first.
Cut on the extra and live within you means!
Your budget will evolve over time. You may even be able to add categories like vacations for example!
If you end up with very little money at the end of both savings and debt repayment, or not enough to pay your monthly bills, then something’s up. You are likely living beyond your means. Something’s got to change. Either you have to cut on your expenses, or find a way to make extra money. Or you can always review the amounts that go towards saving and debt repayment…but that’s not a good long-term strategy.
Do you struggle to budget?
Or have you mastered the art already? Any other tips for us!?