Some people, when putting together their budget, may have noticed that expenses are higher than revenues. In the past articles, I’ve assumed that revenues were higher than expenses, but there are definitely many cases where the opposite is true.
The most important thing to do is to determine whether or not the situation is long-term or short-term. If it’s short-term, perhaps from a job elimination, then it’s important that you cut expenses at least temporarily. However, if this situation isn’t temporary, then you are living above your means and it’s important to change the situation as soon as possible or you will never get ahead.
First, you have to really analyze your budget. Are the expenses truly necessary? Is there a way to reduce them further? There are some short-term things you can do, such as canceling cable, and long-term things you can do such as selling a car. In future posts, I’ll review ways to eliminate expenses in more detail, but here are some things to look at:
- Cut your food bill
- Cancel or cut back on cable
- Scale back on your cars (either go to only one car, or trade down)
- Eliminate large purchases, such as furniture and vacations
- Try to refinance
- Consolidate student loans
- Re-evaluate insurance policies and shop around for lower prices
Any questions, or specific situations you need help with? Post in the comments!
In the past, we talked about starting to pull together information so that you can understand where you are spending money. With a few week’s worth of information available to you, it’s a good time to begin to analyze your spending.
First, look at your food expenditures. Do you find that you are spending pocket cash on snacks, coffee, bottled water, and other items that you may have originally overlooked? In general, the majority of your food expenses should be spent at the grocery store – that’s usually the cheapest place. Therefore, look to purchase breakfast items, coffee and other beverages, lunch items and snacks there.
Buying in bulk and/or with coupons can provide you with huge savings. Personally, we try to shop the perimeter of the grocery store, where the produce, meats, dairy, and breads are. While coupons aren’t really available for produce, there are always sales, and you will also find that items in season are generally more reasonable. There are lots of environmental reasons to choose in season, local items also. Farmers markets and roadside stands are also a great, reasonably priced way to get fresh produce.
Also, you can save lots of money by actually planning your meals based upon the sales, coupons, and specials of the week. The best way to do this is to have some favorite recipes with a variety of different foods, and then using the sale paper and your accumulated coupons, decide what to make for the week.
Do you find that you are frequently eating lunch out or ordering out for dinner? If so, think about whether or not you can limit that by buying some additional food at the grocery store. Buying a salad at work? Can you make one at home? For the same cost as a purchased salad, you can probably buy enough ingredients to make several salads. Do you purchase coffee on the go? Can you make extra at home and carry it in a reusable mug?
There are many ways to save money on food, and all that is required is a bit of advance planning! Do you have other suggestions? Post them below!
Are you having a difficult time sticking to your budget? If so, it may be helpful for you to try out a cash diet for a month. It’s a great way to discipline yourself to only spend the month that you have.
So, what is a cash diet? Essentially, it involves using only cash to make purchases. For example, if you are going to the grocery store, and your grocery budget is $75, you should only take $75, in cash, with you (it’s preferable to leave the credit cards at home too – if that’s safe for you).
Imagine how this trip will go. Because you only have exactly $75, you will be much more mindful of the prices of everything you purchase, and you won’t be tempted at all by “budget busters”, items that you don’t need but seem to be a great deal.
A cash diet can also work with other shopping trips. For example, if your holiday shopping budget is $100 per child, you can bring only that amount, in cash, on your trip. Again, with a finite amount of money in your wallet, you will be much more careful with every single dollar that you spend.
If you are someone who spends quite a bit of money on coffee, snacks, and food outside the home, a weekly allocation of cash can definitely help. To try this out, determine a weekly budget of what you’d like to spend per week on these items, and only carry that amount of cash. You can choose to spend the cash whichever way you’d choose, but the money is gone by Wednesday, you’ll have to brown bag it the rest of the week!
Everyone managing a budget should try a cash diet at least once a year – it’s a great way to understand where your money goes and to discipline yourself to spend only what you have!
I’ve talked to many families who work from a tight budget, and many of them claim that Target or Walmart is one major budget buster. While they may go in for a few necessities, they end up spending way more money than they planned. Here are a few tips on how to make sure you don’t blow your budget during a trip to one of these stores:
- Bring a shopping list. Know what you need, and plot out your trip, making sure to only visit those areas of the store.
- Know what you need versus what you want. During your trip, of instance, you may see a cute shirt for yourself. If you need a shirt, and have already budgeted for it elsewhere, buying it may be a great idea. But buying a cute, cheap item just because it’s in front of you is not a good idea.
- Know prices. For instance, I know that our Target has tees and shorts for children that are cheaper than anywhere else. Therefore, when it’s time to buy kid’s clothes, that’s my first stop. But sometimes, you may be able to find a better deal elsewhere.
- Plan your trip at a time when you can’t spend hours just wandering around the store.  Be efficient – in and out.
Keep in mind that buying cheap things that you need and have budgeted makes great sense, while buying for the sake of buying (even on sale) is not budget savvy!
Have you been tracking all of your expenses? If not, make sure that you grab a notebook or set up an Excel spreadsheet and track every single dollar that you spend. You should at least capture a month’s work of expenses prior to doing the analyzing below.
Once you have put together expenses from the last month, set aside some time, and gather all of your information in one place. Then, by category, determine how much you have spent in the month – You can create your own categories based upon your own personal situation, but some examples are home, auto, student loans, groceries, eating out, heating & cooling, clothing, tuition, etc.
First, look at each category and see if there are any surprises. Are the expenses what you expect them to be? You may find that you are spending more on a particular category than you’d like. Being aware of your spending and your issues is absolutely important, and the first step in setting your budget? Take note of any areas where you are looking to improve, and focus on those areas. In future columns, we’ll review each category in depth.
The next step is calculating your budget. Some categories are simple – for instance, if you owe a certain amount on your mortgages, car payments, etc, that should be your starting point. Go through each line item and figure out what you should be and what you are comfortable with spending. You can start with a monthly budget, but your budget should vary by month. In the winter months, your home heating bill should be higher, for example. You must also include items that do not occur every month – such as oil changes, landscaping, home maintenance, etc.
When you create your budget, of course, you should start out looking at the amount of money that you are making. Regardless of your situation, your income should be higher than your expenses, and you should always “pay yourself first” – ie: put money into savings, especially retirement savings, first. When you are done, you have your first draft of your budget!
All families should update a balance sheet at least once or twice a year to get an understand of what your true financial situation is. Even if you aren’t a finance expert, you can definitely put together a quick and easy balance sheet!
Essentially, a balance sheet is a way for you to compare your financial assets with your financial liabilities. The remainder (which will hopefully be positive) is called your “Net Worth”. To create your first balance sheet, start out with either an Excel worksheet or a piece of paper. You should label the first column “Assets” and the second column “Liabilities” (in Excel, leave an extra column in between for the dollar values”.
Start by listing all of your financial assets with the values – here are some of the most obvious examples:
- Cash (in the bank or CDs)
- Investments (Mutual funds, college savings accounts, individual securities, etc)
- Home Value (list the value of your home)
- Automobile Value (list the resale value of your cars – use the blue book value if you don’t know)
- Personal Property Value (jewelry, household items, etc)
The sum of all of those values is the total value of your assets.
Next, begin to look at your liabilities. This should be everything you owe. Some examples are:
- Mortgage
- Car loans
- Student loans
- Personal loans
- Credit card balances
The sum of all of these is your liabilities. The difference between your assets and your liabilities is your “Net Worth”. When you are young, it’s very common for this to be negative, however, your goal should be to increase your net worth – which you can do by either increasing your assets, decreasing your liabilities, or ideally, both! Aim to update your balance sheet at least twice a year – more if you are aggressively looking to make changes.
Last week, I wrote about motivation. Now that you have decided upon what your true financial motivation is (and discussed it with your partner), this week I have a reading assignment and a list of a few things you should get prepared.
I’m going to write about all kinds of budget tips but I really think this book is important for couples to read. It’s called Smart Couples Finish Rich
and it offers a variety of useful hints and tips for making sure that you are saving and spending appropriately. If you aren’t part of a couple, the author also has another similar book called Smart Women Finish Rich.
If you are really going to be committed to fixing your budget, you need to know the situation you are dealing with. This week, in addition to getting the book, you should start keeping track of your cash expenditures. Anytime you use cash or your debit card, keep track of what you are buying and spending. Carry around a little notebook if necessary.  I’d recommend either setting up an Excel sheet or just a notebook paper, but either way, you should track everything. In addition, when you receive your credit card statement or pay bills, keep track of those expenses also. Within a month, you should know how much you spend by category. Here are a few categories I’d recommend tracking:
- Eating out
- Snacks/coffee
- Transportation
- Gasoline
- Heating oil/natural gas
- Electricity
- Cable
- Internet
- Cell phones
- Regular phones
- Child care
- Car maintenance/car
- Mortgage
- Insurance (car/life/home/umbrella)
- Taxes
- Entertainment
- Groceries
- Clothes
- Toys
- Health & Beauty
- Baby products
- Home products
At this point, you should just be keeping track. We’ll do more with this information later.
Welcome to my first Fix My Budget column on The Mindful Moms. This column will not provide investment or product advice, but will give you the information and motivation you need to help prepare your financial future.
So, let’s get into the Fix My Budget mindset. To start, you need to have motivation. This week’s column, our inaugural one, is all about motivation! If you are married, it’s essential that you and your spouse are on the same page – I cannot stress this enough. I’ve talked to so many husbands and wives whose spouse doesn’t not share the same financial values as them. Please talk through your motivations and goals together before working on a budget and financial plan.
What do I mean by motivation? Basically, it’s a common and clear understanding of what you want money for. On it’s own, money is just paper, right? So, it’s important for you to understand what money means to you. Is it freedom and security? Or perhaps it’s status? For most people, it’s probably a combination – you want security and freedom but also like a few status items. Please admit the truth to yourself – if you want some luxury or status items, that’s totally fine. You’ll just want to make sure you budget for them or else those costs will blow your budget.
Think about your financial motivation this week, and next week I’ll be back with another column!
