Thursday, October 2, 2008

Saving Smart! Series: Day Two

This is a big one! We're going to tackle budgets! Yep, that dreaded b-word that so many people despise!

We've used a budget since 1998 (amazingly, that corresponds to the year we got married!) and it helps us stay on track and spend less that we earn. I love helping families create budgets and getting a handle on their spending!

Many people think of a budget as restraining and difficulty, when really - once it is set up - it is easy to use and gives you MORE freedom because you know how much you have to spend! You not only NEED a budget, but - and here's the kicker! - you need to FOLLOW it! (That is the tough part!) Having a plan for your money helps ensure you aren't wasting away your money little by little.

We use an Excel spreadsheet for our budget (email me if you'd like a basic template I created), but you can use anything from pen & paper, to Quicken. (Can I just add a simple statement in here about married finances? Brad and I have counseled many couples on the dangers of having two separate checking accounts and the importance of making family money family money. If you're married, it all belongs to both of you, regardless of who earned it or who earns more! Really, friends, you are sharing everything else - you need to be on the same page about your family finances. The sooner you can make this adjustment the better! We have run the gamut on this - at varying points in time, I have earned more, Brad has earned more, and we have both earned the exact same!)

First things first - know how much income you have coming in each month. We don't even put payroll taxes on our budget - we just use our net (income after taxes) amount and put that on the spreadsheet. This way we can easily see how much money is flowing into our household in any given month.

If you don't have a handle already on what you are spending each month - save all of your receipts for a month (or write down everything you have spent, even that $.65 soda at work) and put them all in a category at the end of the month. Sample categories include: clothing, entertainment, gifts, car insurance, child care, electric bill, phone bill, mortgage, car payment, etc.

There are lots of ways to create your budget & track your spending, but one of my absolute favorites is the Spending Plan Calculator from Crown Financial Ministries. If you are just getting started with a budget, this calculator could not be any easier to use! Just enter your income, tithe (if you tithe), and taxes. It will give you a simple budget plan based on percentages and your income. You can easily adjust it if necessary. For example, we don't have any car payments, so that category goes down significantly for us, leaving us with additional dollars to put in another category.

If you put together your budget and have money left over - good for you! Use it to pay off bills or save even more. Have a goal in mind for the money you are saving - right now we are saving towards a replacement car and a new home.

If you don't have enough money to cover all of the expenses on your budget, you have two options. 1.) Cut your expenses. Eat out less, make less trips to Target(!), cut down on your cellphone plan, etc. If you find you can't cut back enough (and I'll give you lots of tips over the next few days), then you are left with option 2.) Earn more money. Ask for a raise, take on a second job, etc.

If you are carrying debt and are trying to pay down your debt, I highly recommend you follow Dave Ramsey's advice and - while paying minimums on all of your debts - use any extra money you have to put towards your lowest dollar amount debt. Once that is paid off, snowball that money into the next smallest debt and get it paid off...and so on. We became debt-free this year (except our home) and it is a great feeling!

Revise your budget each month for the first few months as it is a learning process. Once you have a solid budget in place and are following it regularly, you will want to review it with your spouse once or twice a year (more if your income or expenses greatly change for some reason).

I'd love to hear about your experiences of using a budget - or not - and how it has worked - or not!

~~~~~This is Part Two of my Saving Smart! series. Be sure to stop in each day from October 1st through October 10th for more money saving tips and advice. For specific money saving questions, please email me.
"For we brought nothing into the world, and we can take nothing out of it. But if we have food and clothing, we will be content with that. People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction." 1 Timothy 6: 7-9

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