Let’s get one thing clear right from the start: I am not wealthy. However, I do manage my money. I don’t run out of money before my next paycheck and I don’t have “unexpected” expenses that end up on my credit card.
What’s my secret?
I am a compulsive budget-keeper. And you can be one too.
To begin, hop over to the store and buy a spiral-bound notebook. You’ll also need two colored pens: one red, one black. And lastly, pick up a basket or a bin of some sort. Put the pens and the book in the basket, and put the basket by the front door.
On the first day of next month, you’ll start your ritual. Every night when you get home, you’ll empty your pockets of all of your receipts. Remember to put all of them in the basket: ATM withdrawals, gas receipts, everything. You’ll also put in your utility bills (after you’ve paid them, of course), credit card bills, and your check stubs.
At the end of the week, it’s home accounting time. Write down everything you spent in red, and everything you earned in black. Make sure to write descriptions and dates. For example: “6/2; $23 for gas.” Try not to use cash during this period. It’s harder to keep track of.
At the end of the month, you’ll have a good idea of how much you take in, and what you’ve spent. Now you’re ready to set up a budget.
Making a template
The easiest way to create your budget is to use an online template. Why create something from scratch when someone’s already done the work for you? The Federal Reserve Bank of Chicago has created some helpful (and colorful!) templates you can print out and fill in. Just go to www.chicagofed.org and click on “Consumer Information” and then “Personal Finance Information.”
The charts are very self-explanatory: You’ll write down all of your expenses, including housing, insurance, food, gas, utilities, etc. Use your notebook to help you fill in the blanks. And be realistic: Write down what you actually spent, not what you wish you had spent.
Then fill in what you make each month. Again, be realistic. Write down what you actually take home, not what you make before taxes.
Using what you’ve learned.
Obviously, your budget will help you see if you’re spending more than you earn. If you’re in this boat, here are some quick tips:
Ã¢Â?Â¢ Eat out only once a week. Pack your lunch.
Ã¢Â?Â¢ Set a goal to pay off your credit cards. You can eat up a huge amount of money on interest payments.
Ã¢Â?Â¢ Shop with a grocery list and a calculator, and don’t shop when you’re hungry. This will help you know what you need to buy, how much you can spend on fun food, and you won’t be tempted by the candy when you’re waiting in line.
Ã¢Â?Â¢ Give yourself a fixed amount of money to play with each week, and take that money out in cash on Mondays. When the cash is gone, the spending is done.
If you like these kinds of tips and need more of them, try moneymanagement.org for some easy-to-implement ideas on how to save money on things like vacations and new cars. You can also check out www.ftc.gov and search for their article titled, “66 Ways to Save Money.”
Budgeting can also help you set goals for your money. The Chicago Fed has worksheets for this as well, which can help you plan for short-term goals, such as paying for a vacation, to long-term goals such as paying for retirement.
Refining your tools
During your first month of living on your budget, keep your basket by the door and match your actual expenses with your projected budget expenses. Did you overspend? Underspend? Give yourself about three months to adjust, and make sure to adjust your budget if your projections were inaccurate.
At the end of the three-month period, you may find that you’ve outgrown the Chicago Fed worksheets. If so, you can go to a stationer’s store and look for an account book. These bound, ruled worksheets have space at the edges for you to write down expenses, and space at the top for you to write down income. They’re a little easier to customize, and they’re also easy to keep updated.
If you’d prefer to work online, there are several tools available. Some prefer to use the program Quicken, but I am personally not a fan. It’s expensive and it makes a relatively simple idea (income vs. expense) difficult. The entire time I used Quicken, the program did not match my checkbook, and I could never figure out why.
If you insist on an online tool try www.foxway.com or www.betterbudgeting.com. These sites both offer free budgeting software. (Why not save a little money, right?)
Living on a budget
Living on a budget can appear like a quick and easy way to take the fun out of your money. But it’s also a great way to put the fun back in. I set short-term goals (to save $1,000, for example) and buy myself a little gift when I match the goal. I also budget for one Christmas gift per paycheck. That way, I can shop throughout the year, and my friends and family members get more expensive presents.
Remember that a budget is a way for you to get control over what you spend, what you save, and what you do with the difference. Having control is fun. Knowledge is power. So start right now.