Budgeting 101 – Real Advice for Non-Finance Types

It’s the new year, time to revisit your financial habits, make new goals, and start anew! It’s a great opportunity to create a brand new budget, reorganize, and gain control!

Step 1:

Review your budget. It’s best if you compare your actual expenses to your original budget for 2008, and see if it’s still realistic. If not, redo your budget, see if there is anything that can be reduced, and work with your new budget in 2009.

Step 2:

Organize your finances. Depending on your current situation, this could be a simple process or a longer one. First, put together a folder for your 2009 taxes, as you should be receiving important paperwork throughout January. Next, put together folders for bank statements, credit card bills, and other necessary files. January 19th’s Fix My Budget column will be all about organizing your finances, for more information.

Step 3:

Plan your debt payoffs for 2009. Do you have debt that you are planning on paying down in 2009? If so, plan out exactly what you hope to pay each month, and set a goal for the expected balance at the end of the year. On the flip side, if you are saving for anything, including retirement, set a planned savings amount per month, with a goal for each savings target by the end of 2009.

Step 4:

Pay your bills on time. With some organization, and a disciplined approach, you can definitely make your payments on time monthly. Late fees and interest payments are definitely a waste of your hard-earned money if they are a result of late payments.

Step 5:

Plan time weekly to “fix and maintain your budget”! Maintaining your family’s finances is one of the most essential task you can perform, so plan to spend a little bit of time weekly to organize your bills and statements, pay bills, track your spending, and communicate with your spouse on finances!

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If you are like me, you’ll need some sort of tools to help you fix and mind your budget. Here are several tools that are available!

1 – Spreadsheet program – if you have Microsoft Excel or another comparable spreadsheet program, you can easily set up a budget, balance sheet, and simple cash flow statement, and use it to keep track of everything. There are also free and inexpensive spreadsheet templates that you can purchase which will help you!

2 – Quicken or Microsoft Money – I’ve used both, and while I currently use Quicken, both are great. You can set up a budget, download direct from your bank, brokerage company, and credit card companies. By creating categories, you can easily track your expenses from month to month, and develop your own reports.

3 – Online Bill Pay - Many banks now offer online bill pay, and I’d highly recommend you take advantage of it. Instead of writing out checks individually and mailing them, you can send your payments electronically. My billpay service even allows me to schedule regular payments, and they show me all of the payment due dates sequentially. It makes organization much easier!

What are your favorite tools to mind your budget?

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Keeping track of your budget during the holidays can be difficult, but there are definitely a few essential things you can do to ensure that you’ll still be in control when January rolls around.

Most importantly, set a budget and stick to it. It’s essential that you are responsible and realistic when you set your holiday budget. If you can’t afford to spend lots of money on gifts, then think of other things that the recipients would enjoy, such as free babysitting, homecooked meals, scrapbooks, etc. It really is the thought that counts!

When purchasing gifts, keep receipts, and keep track of sales. Know the prices of what you are buying, and if things go on sale, make sure you get the sale price. Keeping the recipes will ensure that you can return the products if your recipient doesn’t like it, or receives the same item.

How do you control your budget during the holiday season?

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Do you have an emergency fund? Having an emergency fund is of the utmost importance if you are looking to achieve financial security. Need to get started? Here are some tips.

First of all, make sure that you know what the appropriate size of your emergency fund should be. Most finance experts recommend 3-6 months of salary saved in a low-risk account. I’d go with a larger amount of you have any concerns about job stability or income. In this economy, targeting a larger size emergency fund is definitely the best approach.

Now that you have a goal, it’s time to start saving. Saving for your emergency fund should be your top financial goal. In your budget, include a line item for “paying yourself first”. It may take a few months, or even a year, but eventually you’ll be in great financial shape!

So why do you need an emergency fund? An emergency fund is exactly what it sounds like – a bucket of funds available to you in the case of a financial emergency. There are many, many instances where you may need emergency funds — such as job loss, home repairs, automobile repairs, health emergencies, etc. While it may be painful and difficult to save up the right amount, it will definitely feel great when you are in a more stable financial situation!

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Paying down debt is often a major financial goal for families, however, it can often be difficult to determine a good starting point. In upcoming articles, I’ll be discussing different types of debt, and how to go about eliminating of reducing debt.

How many of you remember being in college and seeing those enticing displays from credit card companies, giving away tee shirts, water bottles, and other promotional items? For most Americans in our generation, I’d guess that’s how you probably got your first credit card. Mine was a Citibank card with a $300 limit. Credit card companies spend lots of money getting card holders, and can you guess why? Because they are likely to make a whole lot of money from each one.

Credit cards can be a great thing. In emergencies, it can provide you with the ability to purchase a necessity, and they are also extremely convenient. However, the risk of falling into debt is so great, and credit card debt is extremely difficult to get out of.

Why is that the case? First of all, minimum payments can often barely cover the monthly interest, making the payment of principle nearly impossible. Second, interest rates on most credit cards are incredibly high. Finally, many people are continuing to buy things on their card, causing an infinite loop of debt.

Step one of reducing credit card debt is to STOP USING THE CARD! Immediately. If you carry a balance from month to month, you are likely without a grace period, meaning that you are paying interest starting at day one.

Come back next week for Part Two of our Paying Down Debt: Credit Cards article.

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One of the reasons why some people abandon their budget is because it seems too rigid, too forced for them to follow. A good alternative is the concept of flexible budgeting, where you are able to still develop guidelines for spending without specific categories.

For instance, some women want to budget haircuts and colors, but may not do that monthly. In that case, you could create a high-level budget item called “Personal”. In that category, include a pot of money for items for yourself. So, in the month you get your hair cut and colored, you would have less for other stuff. Each month, you have the option of spending your “Personal” budget any way you’d like, but once it’s gone, it’s gone!

I’ve used flexible budgeting in the past, and included things like clothing for myself, haircuts, lunches out, etc in that pool. When I bought extra clothes for myself, I knew that I’d have to start brown bagging my lunches and bringing coffee from home to stay within the budget.

So, what do you think? Could flexible budgeting work for you?

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One area of budgeting that always seems to be difficult to plan for is moderate purchases. Not quite large enough to be considered a major purchase, a moderate purchase may be a new computer, television, gym membership, camera, or any other item in that price range. It isn’t appropriate for your emergency fund, and is likely not included in your monthly budget. So, how can you answer the question – “can we afford it?”.

My answer to that is to have a category in your monthly budget called “moderate purchases”. You should budget for that just as you would any budget category, but instead of spending it, you should put it aside in your checking or savings account, and track the balance offline (in Excel or even a budget notebook). When it’s time to think about buying something new, look at that balance, and decide if that is what you want to spend the money on. This is a great way to make sure you absolutely know if you can afford it, and to avoid using credit cards for this type of purchase.

How do you plan for moderate purchases?

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A few months ago, in my first Fix My Budget column, I referenced the importance of financial goals.  Given the latest events in the U.S. economy and stock market, it’s more important than ever to revisit your financial motivation and goals.

This is an exercise that is best completed as a conversation between both you and your spouse.  Goals must be shared – otherwise, your financial plan is going to be doomed from the start.  Regardless of what happens in the economy, with your job, with prices, with inflation, or with your savings, your goals should not change.  Your plan may change, but the underlying goals and motivation shouldn’t be affected.

Here are some common themes that you and your spouse should have goals and plans on:

• Retirement (at what age do you want to retire, and what type of a retirement do you want to have?)




• College for your children (how much do you want to be able to pay)




• Debt pay-down




• Emergency fund balance




• Fund for large purchases, such as a home

Take some time now to make sure that you are still both clear on your goals, and then you can go back to balancing your budget!  Any questions?  Post them below!

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While many families know about the benefits of going green, they often assume that it’s a costly initiative.  While some green and organic products are more costly than conventional items, going green can also help you become more frugal.  Being mindful of your consumption, of everything from books and magazines to fuel and gasoline, can truly help in reducing your budget, and well as your carbon footprint.

Here are a few ways you can go green, go frugal!

1. Consume less.  Reducing your carbon footprint requires you to consume less – and to consume less, you should purchase less.  This fall, take some time to clean your house from top to bottom, making sure that you organize things and know exactly what you own.  Then, use the items you already have, instead of purchasing new items.




2. Buy used.  If you do need something new, consider borrowing or buying used.  EBay and Craigslist are great resources, as are used clothing and children’s item stores.  There are some things you may need only a few times, and buying new may be a waste.  For entertainment items, such as magazines, videos, and books, either join a public library, or consider trading with friends and family.




3. Sell stuff you don’t need.  After cleaning your home, you may find some products that you can sell on eBay, Craigslist, or local resell shops.




4. Use less energy.  From walking more, to consolidating your car trips, to turning down the heat, using less energy will definitely translate to more dollars in your purse!




5. Recycle waste products.  If your town, like mine, uses a pay as you throw program for trash pickup, recycling items can result in less trash bag charges.

Do you have any more tips?  Post them below!

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