Watch Your Wallet: Budgeting Made Easy

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budget [buhj-it] noun: an estimate, often itemized, of expected income and expense for a given period of time in the future.

Sorry if I just gave you a flashback to 7th grade vocab quizzes! But I thought I’d start my post today with a definition of what the word “budget” actually means because it often has a bad rap when used in everyday conversation.  When we hear phrases like “living on a budget” it brings to mind someone who is barely squeezing by, someone who makes just enough money to pay their bills, and someone who probably doesn’t lead a very fun or comfortable lifestyle. A person “on a budget” eats a lot of leftovers and waits til movies come out on DVD because they can’t afford to see them in theaters.

The truth is – everyone lives on a budget.  We all earn a certain amount of income and have to make choices about where and how we spend it. Even a million dollars can run out if you are not smart about what you spend it on (ex. Michael Jackson went bankrupt building his mansion/ theme park “Wonderland”).  So no matter how small or large your income, creating a budget is the simplest way to get the most out of your money.

Here are some simple tips to follow when building your budget:

1. Watch Your Wallet! Try tracking your spending for a month; every time you earn or spend money, write it down. Then at the end of the month, sit down and map out where your money is going. You may think you already have a good idea in your head of your income versus expenses, but chances are that without a concrete list to refer to, you might be overlooking or forgetting things.

Although a pen and paper will work just fine, there are also a lot of great online tools out there to help you create a budget.  I used this budget calculator on my credit union’s website to help me take a look at my spending: http://cascofcu.com/Personal/Member_Services.php .  This calculator was easy to use – I created my budget in just 5 or 10 minutes. First I typed in all of my monthly expenses such as rent, electric bill, food, etc.

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Then, I entered my monthly income, including my paycheck from my primary job as well as additional income (in my case from coaching swimming but it could be babysitting, cleaning, dividends from stocks, etc.).  Once that info was entered the calculator formed a pie chart for me of how much I spend a month on what.  It also told me how much money I had left over to put in savings.

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The great thing about this was that I could play around with my expenses, so I could see if I spent more on food how it would affect my budget.  Or if I was trying to figure out if I could afford to move out of my parents house, I could type in an estimated amount for rent and the calculator would tell me if it caused me to go over my budget. Once you create a budget that works for you – stick to it! You don’t have to be so strict that you never buy yourself a treat or splurge on something fun, but try your best to stay close to the budget you laid out for yourself as possible.

2. Pay Yourself 1st: I got this little piece of wisdom from a high school friend’s dad, he’s a financial adviser.  What it means is this: every time you get paid, put a small chunk of it in savings.  Consider it a bill that’s due every pay check.  It doesn’t really matter how much you choose to put away (some people reccomend 5 or 10% of your paycheck but you could do something as small as $5) consistently putting money into a savings account every time you get paid is THE BEST budgeting habit you can have.  Adding money little by little to a savings account right now can add up to BIG savings in the future.  Don’t believe me?  Check out a savings calculator like the one on our website http://cascofcu.com/Personal/Savings.php .  Having money in savings means that when emergencies or unexpected expenses pop up (like your car breaking down or a trip to the hospital) it doesn’t throw your normal monthly budget off. An easy way to do follow this rule?  If you get direct deposit, have your employer put a small amount automatically into your savings.  That way you won’t even notice it’s gone!

3. Pay ALL of Your Bills 2nd: At the beginning of every month, total up how much you will need to pay all of your bills (which should be easy because you should have figured that out during your budget creation back in step #1 🙂 ).  Once you know what that total is, leave that amount alone! Don’t put off making loan payments or paying rent just because they’re not due until later in the month.  If you don’t take care of those things first, you’re more likely to spend the money on things you don’t need like a pedicure or new clothes. Pay for necessities early (even if your car payment isn’t due until the 15th, they will still take the money on the 1st).  This plan is smart for 2 reasons: it will help you avoid pesky late fees and you can spend your leftover money guilt-free because you know your bills are taken care of!

4. Pinpoint Your Leaky Spot:  Often times, we have one or two habits that cost us a lot of extra money.  Mine, for example, is iced coffee! I have a terrible habit of stopping at Dunkin’ Donuts every morning on my way to work to grab a drink (specifically a medium iced coffee with cream only, no other coffee is acceptable 😉 ).  An iced coffee there is only $2.50, which doesn’t seem like a lot when you only buy one coffee at a time.  The thing is, if I go through the drive-thru every morning 5 days a week, my coffee habit costs me $12.50 a week, $50.00 a month, and $600 a year! That’s no chump change. If I make my own coffee at home (which I could easily do) it would only cost me about $0.87 a cup, ultimately saving me a grand total of $391.20 a year.  Use your monthly budget and transaction history to pinpoint places like this where you are spending too much money on an unnecessary items and then try to correct the habit (Note: I still occasionally make a stop at D&D, although I try to bring my mug with me most mornings).

5. WRITE IT DOWN!!! I’ve probably said it 10 times already in this one post, but keep a written record of your transactions! We live in an electronic world of debit cards and automatic withdrawals, so keeping a check ledger can seem outdated and silly.  I hear people say “I don’t need to keep a register, I just check my accounts online” all the time.  But how closely do you really check your transactions?  If you got charged twice for something by accident, would you notice?  Have you ever pulled up your account balance and had less money than you expected?  Do you get a lot of overdraft fees?  Without keeping a written record, it’s so easy to slip up and lose track of your spending.  It’s simple logic, if you know your balance, you’ll know how much you can spend.

Still looking for motivation to actually sit down and create a budget?  Try coming up with a big, money-related goal for yourself.  Maybe you want to go on a vacation to Hawaii or buy a new car.  Whatever the big purchase may be, having a monthly budget that keeps your spending on track will allow you to save more in the long run.  Small changes in your everyday spending could mean the difference between getting that vacation or staying at home!

PS If you are interested, there is a great documentary called Broke all about professional athletes who went bankrupt (it’s available on Netflix).  It’s crazy to hear about how they went from making $10 million dollars a year playing football or baseball to being totally broke.  It just goes to show that even with all that cash, you have to have a financial plan!

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