Posted by: rhenderson8110 | March 6, 2013

Budgeting Basics

By night I am a writer, cook, housewife, exercising sports enthusiast. By day however, I am a financial planner. My degree is in financial management and I find all sorts of thrills and enjoyment helping people to get their financial lives in order. Matching a family with a budget plan that works for them and accomplishes their long term goals while giving them the day to day life they desire is my bread and butter.

The first step to financial freedom (and a WHOLE lot less stress in your life) is to have a budget. If you hate budgets with a distinct & burning passion then this is for you. If you have created one and then promptly fallen off the deep end leaving your financial plan in the dust, this is for you. If you’re stressed out and constantly finding yourself panicked at the end of each month this is for you. If you are a spreadsheet queen and are always on the lookout for some way to improve your wonderfully elaborate financial plan this is also for you. Basically- I believe everyone should have a budget of some sort. The key is figuring out what works for you. A budget is like a great outfit: it has to fit you, complement who you are and then enhance what you already have. It should not however, take over your life completely. (Like bright red lipstick & ‘MiMi’ blue eyeshadow does to just about any person. :)) It must suit you. Here are some basics I have put together:

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1. Take the 3 month synopsis.
You can’t begin to chart where you are going until you already know where you are. Go on your bank’s website, sign in (or create a log in and then sign in) and print off the past 3 months of statements. With a yellow highlighter highlight all necessary expenses (rent/mortgage, tithe, utilities, fuel, insurances, groceries, etc.) ONLY highlight what you cannot live without. Then take another color highlighter and highlight all discretionary expenditures (Cable, clothes shopping, coffee stops, eating out for lunch/dinner, entertainment, etc.) Add up each column. This will give you an idea of what your current spending habits are. In a future post I will go into categorizing & prioritizing these discretionary spending habits and what to do when you find you need to cut some out.

2. Set measurable, attainable SHORT-TERM goals for yourself. 
In my experience people are successful when they can give themselves a proverbial ‘check mark’ for accomplishing something. Once you have an overview of what you’re taking in, what your mandatory living expenses are, your discretionary spending habits and any surplus/deficit you can begin to formulate a goal. This can be anything. People are big on savings goals (which are obviously always a good thing) but it doesn’t have to be that. Maybe you set a goal that starting this month you are only going to give yourself $150 to eat out with instead of your usual $250. Maybe you want to pay $20 more per month towards your mortgage. Maybe you want to call around to all insurance companies to compare rates to see if you are getting the lowest rate. It can be anything and they ALL make a difference! An important note on this point is that if you are married it is important that you formulate and agree on these goals together. Don’t make arbitrary decisions without their full support- you need to be in this as a team or it most likely will not work and will cause strife within your marriage. So take 30 minutes and make for yourself a small short term goal that you can feel good about accomplishing!

3. Find a budget buddy.
We need an outside source to keep us accountable- it’s just the way we’re made. If you’re married this is your mate. If you’re not, you choose. We all need this. This is why having a workout partner is so effective. I would also suggest setting up a time 1/week or 1/month to ‘report’ to each other. It sounds funny and maybe a little too formal but I promise it will motivate you to stay true to your goals!

4. Be flexible to short-term needs while maintaining a long-term vision.
Your car will break down. You will get the flu. Your pipes will freeze. Life happens and it’s often expensive! When these things come up we obviously need to address them. Have a budget but don’t be SO tied to it that you throw your hands up in despair when you have to forego your monthly savings deposit to fix a tire that went flat. Enter into budgeting with the understanding that you are going to have financial setbacks. This does not mean you’re failing nor does it mean you should throw the whole concept out the window in one large emotional gesture. Address the immediate financial obligation and then start anew the next month. Don’t throw the entire playbook out just because you got blindsided by a QB sneak. Trust in the budget/goals you have set and get back on track when you can.

5. Set up rewards for yourself.
Budgeting can be hard and for the less financially inclined it can be a huge pain. So build in some ways to reward yourself! For example, if you meet your savings goal for 3 months then use the 4th month ‘savings goal money’ and do with it whatever you want! You’ll still have 3 months extra in your bank account that you wouldn’t have had otherwise. Or, if you do the research and save yourself $400/year switching car insurance companies allow yourself to take a percentage of that savings and have fun with it! Building in rewards will give you a feeling of accomplishment and will help you want to stay on track for the future.

Those are some budgeting basics for you- I hope they’re helpful! There will be MUCH more to come in this area and stay tuned for a budget template I put together that you can use! When you decide (see I’m assuming the sale already ;)) to take on a budget, be purposeful, organized and remember to cut yourself some slack along the way. Here’s to financial freedom!

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