"How can I save money and pay down debts?"...Start a budget today!
Aaron Carlock
Wednesday 26th of April 2006 @ 4:33 AM
So you have the job, money is coming in the door, but if you are like most Americans it is going out the door just as fast! The B word is very intimidating to most because it screams “boredom” and “oppression”. What most people don’t realize, however, is that debt and lack of savings scream louder, and with more vulgarity. A budget is a critical rung on your social ladder to success. Without a budget owning a home, saving for retirement, and having a decent savings account become more and more difficult to attain. The kicker is that maintaining a budget can be one of the easier and more rewarding things you do in life. You will be amazed at how addictive, and even fun, it can be to manage one. The more you save and control what you spend the happier and more free you feel.
You may be asking yourself, “This sounds great, but where do I start?” I have put together a simple Excel spreadsheet that breaks down what money you have coming in and it has multiple categories for entering what money goes out. To get started, download the budget spreadsheet and determine how much money you have coming in monthly. Then figure out how much you spend on your house, car, private/student loans, and daily living per month. Use the goal column to set a maximum that you want to spend in each category. It will auto-populate the rest of the months for you. For the first month track how much you spend on groceries, eating out, going out, and random personal items. Once you know these try to figure out the max you want to allow yourself to spend on each category per month. Hopefully you have something left over at the end of the each month. If not, you need to read our article on Living Below Your Means.
If possible try to pay all your bills on the first of each month. This makes it easier to reconcile your checking account, and keeps worrying about paying bills on time to a minimum. When you pay your bills take the amount you are estimating you will have left over and deposit/transfer it into your interest bearing savings account. This gives a little bit of a safeguard from spending money that you should be saving. Plus, good savings accounts have a 2-3 day waiting time for funds transferred back to your checking account as a further disincentive to make compulsive purchases.
So now you have a budget, but you may be wondering “How will I ever maintain this thing going forward?” This solution to this is simple and maintaining a budget becomes as much a part of your life as paying bills. Since you are paying all your bills at once a month it is helpful to bring up your spreadsheet each time and enter the exact values of the bills paid for the month. This will give you an accurate number to transfer to your savings account and will make maintaining the spreadsheet simple. The daily living values will always vary from month to month and you may spend less than you estimated if you are frugal. This is a bonus because when next month rolls around you can put that extra money into your savings account.
This solution to budgeting may not be granular enough for the shrewdest of budgeteers out there, but it works wonderfully for those of us who would rather spend our time living than hoarding and detailing every receipt. I find that most people have a hard time dealing with the fancy software and tedious tasks of maintaining a highly detailed budget, and they eventually give up and scrap the whole budget idea altogether. So my advice is, keep it simple. You will start to fine tune and squeeze every extra penny out of your budget on your own when you see your savings account sky rocket. Remember, a budget is only effective if you keep it up-to-date and incorporate it into your busy life. Good luck and happy budgeting!
