28 replies to this topic

[radi8]

This is intended as an ongoing discussion for members to add their suggestions and comments.
If you have a useful budgeting tip- please share!

Budgets. Ick. Do I really need one?
Well, no. Some people have a knack for planning ahead and allocating their income without putting it on paper.
They probably don't need a "budget". I don't trust those people, lol. Anyone that organized without having to work at it is just plain suspicious. Haha. J/K. Sort of.


If you are looking at a budget as the "enemy", something that is laying on the desk plotting to steal your income while taking all your fun away....you won't benefit from one either. They don't work if you keep cheating, lol.
OTOH, if you are wondering why, since you have enough money coming in, you never make any headway- a budget may be for you.
If you are having trouble meeting all your obligations or need to "find" money to pay down a bill or to save, a budget may be helpful as well.

Think of a budget as giving instructions to your money. You're going to tell it where you want it to go instead of just wondering where it went!

Budgets don't have to be the enemy. Lets work on making one that's liveable.

[radi8]

To get started, you need two things:
1) Details on your monthly income from all sources.
2) Itemization of your expenses- all of them.

#1 is fairly easy. Add up your monthly income and set the figure aside for now.
If your income is irregular, it's tougher but not impossible. You'll just have to work with averages, and keep your budget flexible to compensate for lean months.


#2 may take some work.
You might start by making a list of all of your required payments: loans, insurance, utility bills, mortgage, etc.
Expenses that you pay yearly, divide by 12 for the monthly portion.

Add up all the payments and subtract it from your income. Got money left? Good!
Next step is to see where that money goes.

Perhaps the most complete way to do so is to log (in a notebook, etc) every penny you spend for 30 days.
Every last one. Even that latte you snuck at work, even though you said you weren't going to.

At the end of the month, you'll have a lot of data to sort, (but you'll also know where your money is going!)
Sort your expenses into categories;
Food- necessary (dinners, lunches, etc)
Food- unnecessary (snacks, fun foods, perhaps convenience foods)
Personal care
Clothing
Gasoline
etc.

The idea is to create categories that describe what the money was spent on- and whether the expense was necessary or optional.

Got all that done already? ok! let's move on

[radi8]

So.... we have income, and expenses all written out.

Add up all of your expenditures over the 30 days and subtract it from your income.

Still have money left over? Congrats! Many familes do not.
In fact coming up with a negative number isn't entirely uncommon. If your credit card balances are creeping upward or you are juggling bills monthly and perhaps have refi'd for cash out - just to make ends meet- you just found out where it's going. Filling a hole in your budget.

[radi8]

Time for a fresh sheet of paper.

On it write down each of your necessary expenses- the mortgage, car loan, insurance, utilities,
food from the "necessary" colum, anything you either cannot avoid or cannot live without goes here.
Add it all up and subtract it from your income. Hopefully you have money left over. If not, and there is nothing to chop- you have some serious decisions to make. More on that later.

With the income that's left over,
start adding the "unnecessary but I'd sure hate to live without it" expenses back in.
Cable TV, cell phones, that sort of stuff belongs here.


Got all the "almost-necessities" calculated? Good. Subtract from your remaining income.
Money left? Great! You aren't in bad shape!
Did you run out somewhere in this section? Hey, that's not unworkable. More later.

With the income that remains,
start adding in your optional items. Fun money, Starbucks, that gym membership that you never use.... (oh sure you do superman. Nobody uses those more than a month, I'm not buying it haha)

Any income left over after you've applied all of your expenses?
Yes? Get outta here, you don't need a budget, you need to send Radi8 on a nice vacation.
No? If you ran out of income in this section, you're doing OK too. You have all your necessary items covered and something left over... just a matter of adjustment so things will fall into place.

[radi8]

If you run out of income before you run out of expenses, this is the section for you.
There are only (2) ways to deal with this situation,
A) increase your income, and/or
B) chop your expenditures.

A) increasing your income

This could mean an additional part-time job, there is discussion elsewhere in this forum on work-at-home ideas, second income ideas, etc. If you can't find what you need- start a new topic!

You might also check your tax withholding. Really.
If you get a large refund, you could have that money added back into your paychecks, having just enough withheld to cover your anticipated tax bill.
If you receive an EIC credit, that can be paid out over the full year as well, added right on to your paychecks.

The IRS website has a withholding calculator that is pretty good at helping you set your withholding allowances.
Perhaps your employer's accounting dept can help you make adjustments as well.

If you are underemployed, adding new job skills or changing employers might be a long-term solution. In real life that's tough to do if money is already in short supply...but check around anyway- perhaps you qualify for free job retraining, or your employer will pick up the tab for work-related classes?

[radi8]

B) chopping your expenditures.


First look for freebies.
Look carefully at each of your expenses. Can you shop around for anything?

Car/homeowners insurance is a likely place to save. Different insurers can charge wildly different premiums for the same exact coverages. Get some quotes and see what you find.
Do you have duplicate coverages? No sense in paying for AAA and towing on your car insurance. Dump one.
Deductibles? Raising them will most always lower your premium. Your lender may have a maximum deductible they will allow, if your car is financed, best to ask.

Car loans- can they be refinanced at a better rate? A credit union would be a likely option.

Coupons? That's a subject for an entirely new thread, suffice to say some people save a considerable amount of money using them. Maybe you can too.

Saving energy is "free" money as well.
Check the water heater, often temperatures above 125 are unnecessary and waste energy.
Lights? Turn them off! If you have kids, good luck with that one, lol. CF bulbs can save some $$, see if your utility offers them at a discount. Some do.
Turn UP the A/C, turn down the heat, etc. You know the drill.

Here are some excellent threads on saving money and budgeting:

Foshizzle's master thread on saving money

JaCC's thread on reducing expenses

Butterflywings thread on finding an extra $50

[radi8]

If you are out of income before your *necessary* expenses are paid:

First, reconsider your definition of "necessary". Food is necessary, shelter is necessary, medical care/medicines are necessary.....
DirecTv is not. Sure they'll whack you with an early termination fee in some instances, but what's worse- that- or being unable to pay your car loan because you are $50 short? Defaulting on the car will likely do you more damage than cancelling the DirecTv.
Same with cellphones.
There are some difficult decisions to make here and it sure isn't fun. You'll have to be painfully honest with yourself on what you are spending- and why.

If there just isn't anything you can axe, no car you can sell to end the payments, nothing more to cut (and this situation isn't that uncommon, unfortunately)
and there is no way to increase (or you've lost entirely) your income;
could you stay afloat if you could reduce or eliminate some payments? Credit cards? Medical bills?
Perhaps a Consumer Credit Counseling service or exploring Bankruptcy would be appropriate. Neither is the end of the world, in the right circumstances they can be lifesavers.

[radi8]

What's the "envelope method"?

Exactly what it sounds like. Envelopes.

Grab a box of envelopes, for each bill/expense/payment you have scheduled, create an envelope.
If you are paid twice-monthly, write 1/2 the monthly amount due for that expense on the front of the envelope.
(the amount you need to pull out of each paycheck to fulfil that obligation)
Also write the expense' name, and the due date.

If your monthly mortgage payment is $810, take an envelope, write:

Mortgage:
$405 (from each paycheck, remember?)
Due on 15th.

Electric bill $110?:
Power Company LLC
$55
Due on the 1st.




When you get paid, take the cash and divide it up among the envelopes according to the markings.
Arrange them by due date, pay in order.

This method forces you to stay within your limits. If there is only $10 in your Starbucks Fund envelope, when it's gone- it's gone.
If you steal money from your "electric bill" envelope to head over for another coffee...you see graphically exactly what you are doing. ..making it impossible to pay your power bill because you spent it at starbucks instead.

This method takes some tweaking and fine tuning to get running properly, but it can make a budget work when other methods fail. Some people need the visual + graphic + physical boundaries that envelopes set up...if so, try it.

[radi8]

Make your budget realistic.

Most of them fail because they are either unrealistic or too restrictive.
Cheating your budget by spending money in an unplanned (or unaccounted) manner will cause it to fail in short order. Be honest when you list your expenses.
If you have to have that triple-decker super sandwich combo every day for lunch- budget for it.

Which brings up the next point- restrictiveness.
If it's at all possible, set aside a few dollars for fun and recreation, even if it's only $5/paycheck.
A budget that doesn't allow for any discretionary or "fun" money will fail.
Once your budget ceases to be a tool and becomes a burden, you will resent it and eventually discontinue using it. Much better to make it livable in the first place.

[radi8]

What about savings?

Ask two different people this question and you'll get 2 different answers at minimum.
Some believe savings should be on the back burner until higher-rate obligations are paid off, others see value in keeping a nest egg of some sort in the bank regardless.
I believe it prudent to allocate money monthly to an Emergency fund until you have a workable EF. $1-2K would be reasonable.
Savings beyond that is up to you and your situation.

[hlburi]

Radi8, are you talking to yourself???

j/k


This is a good topic...I will read what you wrote and see if I have anything relevant to add.

[ClaraTabby]

I think the biggest key to a successful budget is flexibility. I compare it to weight loss. If you eat nothing but lettuce, sure you are going to lose weight. However there's a huge possibility that your lettuce only diet will fail, and you will binge.

Many people are the same way about money. YOu have to have something called "Blow Money"

[TinaP]

Just thought I'd throw in my very basic budget.
DH has a budget done in Excel, but sometimes he's really anal. This is our budget. You can of course add and modify to your own expenses.

MONTHLY EXPENSES
Income = $XXXX ($XXXX x 2)

UTILITIES

Electricity (Company) - $
Gas (Company) - $
Phone (AT&T) - $
Cable (Company) - $
Rent (Landlord) - $

OBLIGATIONS

Car 1 (Car name) - $
Car 2 (Car name) - $
Car insurance (Geico) - $
Student Loan (US Department of Education) - $
Karate (Payment Company) - $
YMCA - $

MISCELLANEOUS

Gas
Groceries
Cell phone

[TinaP]

I keep all monthly bills in a 2" ring viewbinder. Each month has its own folder with a tap for that month. All bills for that month are kept in the folder. I keep stamps, a checkbook, plenty of paper, envelopes and address labels with the binder. The viewbinder is important because I slip my above budget into the front of it. I mark off on each bill at the top the date I wrote the check, the check number and the amount of what was paid.

[Kona]

Radi8, are you talking to yourself???

j/k


This is a good topic...I will read what you wrote and see if I have anything relevant to add.

No, he isn't talking to himself! I've had some unusual and unexpected expenses the past few months, so I am now biting the bullet to see how to handle it.

I now have a spreadsheet on which I track my expenditures. It is amazing how much those little bits here and little bits there add up.

I'm in the process of determinging what is a "want" versus a "need." Do I really need a pair of new shoes? No!

[ClaraTabby]

I just wanted to let you know that a cellphone is not optional for many people. I gave up my landline in 2002 and I havent looked back. I rely on my cellphone as my only phone.

Also cellphones often have huge early termination fees....

In most cases you don't need a cellphone and a landline. Look at your situation and consider getting rid of the one you use the least.

[violakat03]

I just wanted to let you know that a cellphone is not optional for many people. I gave up my landline in 2002 and I havent looked back. I rely on my cellphone as my only phone.

Also cellphones often have huge early termination fees....

In most cases you don't need a cellphone and a landline. Look at your situation and consider getting rid of the one you use the least.

I agree. It's not optional for someone in my business. I work in car sales and if a customer needs to reach me, it doesn't matter where I am or what I'm doing. I keep a cell phone only, no landline. I'm never at home so I don't need a home phone. DH is on my account as a second line, along with one of my best friends who pays me lump sums each time she gets a student loan disbursment, to cover several months at a time.

However, I do restrict the use of text messages, wireless internet, and other extra goodies on my account. If you're going to use them, you're going to pay for them or they get turned off on your line and that's one of the advantages to me being the administrator of the account.

The only 'extra' feature activated on any line of my account is international calling on my line only, so that I can call a good friend in England and not pay out the wazoo.


One way that I've discovered to cut money out is to comb all your bills with a fine-tooth comb.

You'd be surpised what you find. I discovered we were being charged twice for sewer (once from electric company and once from water company), charged for roadside assistance on Cingular, and at one point in time Cingular charged me for shipping on a phone that I never ordered!

[jewlsandlace]

My husband and I started using the envelope system on January 14. SO far with us allocating funds, we have paid off (to date) $5,0000 in debt. This system has made us better planers and less impulsive. I am currently closing my business and when everything is said and done that will be another 10-15 easily. It is not easy but worth it.

We are so bad that my brother and his wife inited us over for poker and pizza and I told her i needed to know the exact amout of the pizza so i could budget... she decided on hot dogs she alread had.... She has been asking questions ever since.

We were tired of being a prisoner of our money..so we over threw it.....

[skdigi]

I'm working on getting an emergency fund saved up...if you aren't good at putting money aside (it just slips through my fingers) maybe open a savings and then have your job direct deposit a certain % into it that way you never see the money...

[TinaP]

I just wanted to let you know that a cellphone is not optional for many people. I gave up my landline in 2002 and I havent looked back. I rely on my cellphone as my only phone.

Also cellphones often have huge early termination fees....

In most cases you don't need a cellphone and a landline. Look at your situation and consider getting rid of the one you use the least.

I totally understand that. But for a lot of people they don't really need one (like me) and usually pay way too much for using way too little minutes, or just use it to gab.

I've had a contract before, but I don't use my cell phone all the time, just if I need to, so I have a pay as you go phone and only spend roughly $25 every 3 months.

[Gonna Do It]

This one may seem a little crappy, but it's our best way of managing the money.

Pay your bills every payday!

That way, you can't slip and spend the money that was supposed to go to the electric company or your landlord. If you get paid every two weeks, split your expenses in half and pay them twice per month.

This is pretty similar to the envelope method, except you will be actually send out your payments to the company.

Another thing we do:

Never pay by paper check. Always use online bill pay or pay by debit card, something, but don't use paper checks. They often take a little while to clear and can get you in trouble if you rely on the online/telephone banking system for your money updates.

Another thing:

When you pay at the pump for gas, always use debit (if you're paying from a checking account), that way they will authorize the full amount of your gas, instead of that $1. Once again, this is for those of us who rely on online/telephone banking to give us our balances.

[Uncle Buck]

We were tired of being a prisoner of our money..so we over threw it.....

I love that one...I gotta stick that on the 'fridge.

Great information, Radi8, and well presented. I like the way you break down necessary vs. quasi-necessary vs. unnecessary spending. DW and I have used a written monthly budget for over two years and I don't know how I ever did without it. Rather than being restrictive, I find a budget actually comforting. When a bill is due, I now just pay it, without having to feel a little nervous about whether or not we have the money. I know we do. It's been planned in advance.

I'd like to add to this discussion that I use an Excel spreadsheet for the budget, and track the bank accounts in Quicken. When you track in Quicken or other personal financial software, and assign a category to every entry, you can quickly run reports at any time that tell you exactly where your spending is. No cheating. Black and white. No money is spent without being recorded. Even if I take $20 from the ATM to pay for a haircut, I enter that $20 ATM receipt in Quicken as "Personal:Hair Care". We use cash envelopes for some expenses like eating out and pocket money; I just cash a check at the beginning of the month and record the amounts to the appropriate category in Quicken. I know that using software isn't for everyone...that's cool. But I recommend it for those who want to keep a handle on where the money is going. And it makes reconciling your checking account (you ARE doing that, right? ) a snap.

[Alivecomic]

This one may seem a little crappy, but it's our best way of managing the money.

Pay your bills every payday!

That way, you can't slip and spend the money that was supposed to go to the electric company or your landlord. If you get paid every two weeks, split your expenses in half and pay them twice per month.

This is pretty similar to the envelope method, except you will be actually send out your payments to the company.

Another thing we do:

Never pay by paper check. Always use online bill pay or pay by debit card, something, but don't use paper checks. They often take a little while to clear and can get you in trouble if you rely on the online/telephone banking system for your money updates.

This is what I do, and it's been a lifesaver. It's a great idea!

Another thing:

When you pay at the pump for gas, always use debit (if you're paying from a checking account), that way they will authorize the full amount of your gas, instead of that $1. Once again, this is for those of us who rely on online/telephone banking to give us our balances.

But please bear in mind this can vary (the $1 authorization amount), and not all pumps can accept all debit cards. Your bank may also charge fees for using the debit option that don't always show up immediately.

This is a good idea, too--it'd not occured to me to try that with my current bank. I'll try that next time I buy gas!

You can get the entire amount of the transaction by paying inside, too.

[driggers]

could anyone possibly post a blank version of their excel spreadsheet.

i am a college student that gets a lump sum (from student load) at the beginning of each semester plus i get paid every 2 weeks. im just trying to make sure i have money by the end of the semester.

[jcs0527]

I haven't read though everything and if this has already been said sorry.

One thing I have noticed in budget failures is underestimation of expenses. It is always better IMO to budget for the HIGHEST amount of a debt. The reason I think this is better, lies mostly in the fact that if your electric bill is 100 usually but can be as high as 150 if you budget for 100, on the months that it is higher you will be short.
Also the extra money you have can been saved to go on a vacation or just put it in a savings for a rainy day.