New to budgeting? 5 steps to follow
|September 5, 2013|
Do you budget? If not, you’re not alone: A June 2013 Gallup poll showed that only about one out of three Americans do.
Just under a third of those surveyed said they or their spouse or partner make a detailed monthly household budget that tracks income and expenses. That leaves two-thirds of Americans in the non-budgeter category.
I used to fall into that category of non-budgeters. Sure, I had good intentions and thought of a budget as something I should do — kind of like flossing, and about as much fun. It was easy to procrastinate.
What finally got me to start budgeting was the stress of checking my bank account online and panicking when I realized I had much less money than expected. There were even a few times where I dipped into the red and got hit with huge overdraft fees.
Worse, I found I spent money on things I didn’t care about that much — impulse purchases such as clothes or shoes — and didn’t have enough left over for the things I really wanted to buy or do, such as going out with friends or visiting family.
So, if you’re part of the almost 70 percent of consumers who don’t budget, what steps do you take to change that? These five tips will help you get started:
1) Calculate your income. If you have a regular job, this should be fairly easy. Check your bank account or pay stubs to calculate how much you bring home each payday. If you’re self-employed or have an irregular income for some other reason, Forbes.com recommends budgeting “backwards.” First calculate your baseline expenses — the essentials you need in order to live, such as basic groceries, housing and utilities. Then build in money for extras (such as transportation costs). Whatever money you make goes first to those things. For anything left over, create two savings accounts: one for emergencies and one for non-essentials, such as vacations and cute shoes.
2) Add up your expenses. Fixed expenses, such as rent or mortgage payments, are pretty easy. To calculate how much you spend on non-fixed expenses — such as groceries and restaurant meals — go back through the past few months of your online banking or credit card statements. Or, if you’re a cash-only person, you might have to track your expenses for the next month.
Tip: Getting on an even-payment system for utilities (if your utilities company allows you to do so). Throughout the year, you’ll pay a flat rate each month, based on your past usage, which will eliminate the sudden spikes in the summer and winter.
3) Use a free template, app or online tool. If you don’t know where to start, there are many free budget templates to use as cheat sheets. Personal finance blog BudgetsAreSexy has a list. This is the part where you crunch your numbers — and tweak them if necessary — to make sure your money fits.
Tip: Be realistic. If you love to go out to eat with friends, don’t make a budget with no restaurants category, or you will end up either feeling deprived or blowing your budget. Also, don’t forget savings — especially an emergency fund if you don’t have one.
4) Reward yourself by budgeting for fun. The blog Budgeting in the Fun Stuff has tons of great ideas on how to work your wants into your budget alongside your needs. For example, Crystal, who writes the blog, puts 5 percent of her income into a vacation fund and 5 percent into a “fun money” account, which she uses to buy Crocs or shirts with funny sayings. Planning for fun is great because it helps you get those “wants” that are most important to you — and keeps you motivated.
5) Plan for budget busters. Something always will happen to mess up a perfectly planned budget. Of course, true emergencies such as a flat tire or busted water pipe should be paid for out of your emergency fund, but what about something like getting invited to several weddings in one summer? The Budgeting Babe lists five things that have blown her budget — including underestimating the cost of a vacation. For me, it’s not having Sunday to plan meals on a weekend when I go out of town, then spending extra on restaurant meals and other convenience foods the following week. Knowing this ahead of time helps: I can make meals to freeze before I leave or build in time for a quick grocery run when I get home.
If you’re still not ready to take the plunge, check out this roundup of budgeting tips gathered by Budget Bloggess. My favorite: If you hate to budget, do it with a glass of wine in your hand.