Budgets work

Budgets work. They are a very effective way to get finances under control. If you’ve been working your budget for a while, you are surely seeing results. Want to speed things up? Maybe you need to speed things up? Sometimes a second (usually temporary, part-time) job can be the means to get out of a tight spot.
They (the tight spots) do show up occasionally. Maybe you need to pay down your debt quickly. Maybe the holidays are coming. Maybe you’d like a little luxury. Maybe something happened and there was not enough money in your emergency fund to cover it? Maybe you want to build up your emergency fund, to avoid just such a scenario. There are reasons to consider taking on some extra work. There are, also, some reasons not to.
Achieving the goals I suggested you set as the purpose for taking control of your finances through budgeting (lowering debt, establishing an emergency fund, and building long-term savings) are aimed at making your present life more pleasant by ransoming it from past spending and providing a secure future. Of course, that requires discipline now, but the object is to make your money work for you, not for you to become a slave to budgeting. In fact, some people who go on a budget find they can actually quit second jobs.
That said, what do you need to do to enhance the quality of your life at this time?
There are a number of aspects to this question. No matter how many I address, I’m sure you will think of others. A major determining factor is going to be need. Realistically, if your monetary outlay (even after you have cut out all the extravagance you can) is greater than your income, you have to do something. Since a goal of budgeting is to eliminate or avoid debt, borrowing money should not be a consideration. This means you have to produce the money you need.
Upon deciding they need more money, many people immediately start writing resumes and filling out applications. Since you want to be proactive—taking control of your money, maybe be you want to view your time as an asset you can budget. You should be in control of your time, too. Do not just head for your local convenience store or grocery hoping to get as many shifts a week as they will give you. Think about your need. How much more money do you really need make a budget that will work for you? Then, consider pay rates. Now, what work is available that will give you what you need and still leave you with time to do the other things life requires of you? Target those possibilities.
Also, as you consider a second job, think about yourself as more than a tool for someone else to use. What abilities and skills do you have that you might turn into cash without having to “punch a clock?” Many people develop their own sources of revenue—some with more financial and personal satisfaction than they ever received from working for someone else.
You have some choice in how you generate new funds.

Goals: Set Them

This post and the next few to follow will be collateral to material I’ve already covered. We’ll move to Phase 3 after you’ve had some time to work on and in your budget. Remember, I’ve said several times that your budget will often be a work in progress. This does not mean that you will be making radical changes to it on a whim. It means that as you claim more control over your finances you will “tweak” it to become ever more effective in reaching your goals.
In an earlier post I suggested 3 goals that many people use a budget to achieve. They were:
1. Getting debt free
2. Saving up six months of money for emergencies
3. Putting away ten percent of our pay for the long term (frequently this means
towards retirement)

You may have other goals in mind—extensive renovation of your home, for example. Regardless, all major goals have one thing in common. They require a lot of funding. To avoid debt, we have to plan for them and allocate ourselves “partial payment” of the total cost over a period of time.

A major element in goal setting is the understanding of priorities. Of course, the funds required for living (housing, food, etc.) are going to be allocated first, but even the amount of money you assign these categories is influenced by things like credit card and loan payments. I realize some of your debt may be tied to the very categories I just mentioned, especially housing. It also ties you to your house and pleasant as your home (or say, your car) may be, owing on it can limit your ability to make beneficial changes. —Debt is a big deal. If debt reduction is (or needs to be) a priority of your budget, do give it all the attention (funding) you can. The sooner debt is paid off the more freedom you have to live more fully.
That same reasoning holds true for saving. I know I’ve brought up two goals that involve building a cash reserve. Do it. At least put something away regularly. Even if your major goal is to get out of debt. It disheartening, at the least, to pay and pay. —To make progress only to backslide because life “threw you a curve ball.” You may not be able to have separate funding for emergencies and savings right away, but it growing reserve needs to be a priority. It gives you growing control over your life.
After you have your basic priorities covered look at other things to accomplish. Determine which of them are real needs or soon to become needs (versus wants). Funding for these becomes a priority, a goal. Again, if it is early in your life on a budget, the funds for these goals should be incorporated into your emergency/ savings reserve and as you accumulate money to cover their expense you may want to seriously consider the wisdom between going ahead and using the funds and waiting for your reserve to build more. Legitimate choice—that is control of your money.

still using a ledger almost ready for the next step

You’re close to finalizing a budget. You are keeping track of your spending and recording your figures. You’ve compared your income and your expenditures to see how they correspond and you’ve looked at your recent spending patterns to find where money saving changes can be made. You took a major step in money management when you assigned allotments to the various categories in you ledger. That ledger, along with your budget, is still a work in progress but you will soon have it in working order.

You have been using the figures from your little notebook that you organized under your spending categories to decide what your allocations would be. I mentioned at the end of my last post that you might be changing some of those allocations. You also might need to incorporate some new categories in the ledger.

The figures you’ve been noting are a record of your current expenditures, but there are some that are occasional—birthdays, anniversaries, holidays, maybe even items like quarterly insurance payments; you may have others. These need to be taken into account, as do your larger bills like housing and car payments. (Maintenance and repair of home and car might be included here, too—if you have not already taken them into account). Bills that fluctuate seasonally (like utility bills) need to be addressed also. Many of these expenses are next to impossible to cover with one paycheck, especially if you want to have funds to get you through to the next one.

Look back through your last 12 months of checkbook entries, and statements. (If you don’t have copies of these, they can often be found online or ordered from the banks and other institutions you do business with.) Get a reasonable idea of what you spend on each of the variable expenses. Then, divide each sum by the number of pay periods you have. The figures you get will be the amounts you set aside as averaged “partial payments” every payday. (Doing this can save you from a lot of panic as the due dates for these bills approach.)

As you are still setting up your ledger, there are two more categories that are essential to include. One is an Emergency Fund. The other is Savings. Sometimes, especially when a person is new to budgeting (and, maybe, desperate) these have to be combined. Do assign some funds to this (the more, the better; but something) with the intention of accumulation. If a “rainy day” does come along, it can be grey, not pitch black.

The funds you have been allocating to your categories have been based on comfort (wouldn’t that be nice?), or more likely, necessity. Financial experts tell us that allocations should be percentages of income. That’s an ideal; I will address it in another post.

We have to deal with reality. Most of us, probably, would not choose to budget if we didn’t need to. The truth is, whether we do it because of need or not, it does allow us more control of our money. For now, assign your funds as is best for you. You now have a budget. Start telling your money what to do.
With your ledger set up in categories and figures set for reasonable distribution of your income, you should have a working budget. As I’ve said before, it is a work in progress. In my next post I will address some issues to help you in the refining process. Meanwhile, continue to carry your little notebook. Record your expenditures as they occur and transfer them to your ledger. Use your budget as your spending guide.

phase one keep track continued

In this post I’ll continue to talk about setting up your ledger. Then we’ll start to develop a budget.

At this point you have your ledger set up with expenditure categories across the top of the columns, saving the last column for daily totals. You have transferred your figures from the last 30 days so that they appear in the appropriate column on a line corresponding to the correct date. You may have already entered daily totals in that last column. If not, do so now. Also, total each column and enter the figure in the last row across or in the bottom margin below its appropriate category column.

Add the figures you have across the bottom of your columns. Write that sum at the bottom right hand corner of the ledger page. Now, add together the figures in your total column. That sum should match the figure you noted in the bottom right hand corner of the page. (If it doesn’t match, you’ve made a simple addition error and just need to redo this step.) This figure, this total of totals is the amount of money you paid out during your period of recording. How does it line up with your incoming funds?

If you did not out spend your income—congratulations! (You may still want to make some budget adjustments, so you can make any debt payoffs quicker or save more money.) If you spent more than you had coming in, you may have a real need to make some changes.

If you experienced a financial short-fall, there are a couple of things to consider immediately: One, if you followed the instructions I gave you in Phase 1, you recorded all expenditures as cash. —Think about what you actually put on your credit card(s). Does that account for a significant percent of the over spending? It does for many people. That’s why I had you record those transactions as cash; you need to be conscious of the damage credit cards can do. Also, it is possible that you don’t have enough income. You need to be careful in coming to this conclusion. Many people want to say they that when it is really spending habits that are the problem.

This is a good time to examine how you spend your money. That a significant factor in preparing your budget. Look for waste and extravagance. For example: I used to drink several sodas a day. When I began developing a budget I started buying soda in bulk and carrying my daily supply to work. I decided I would not continue to pay a premium price for them individually. As my budget evolved, I realized I what I really needed was something to drink several time a day, not particularly sodas. Don’t get me wrong, I do enjoy soda, but it was just a habit to drink so many. I still buy soda in bulk for the price break, but I only take one a day with me to work. My office supplies coffee (for free) and there is, always, the water fountain. Now, my soda is a refreshing perk to be indulged when I need it most. Here’s the important point of all this—the money this adjustment saves me on a daily basis is negligible, but over the course of a year it is huge! And please note, I still get to have this “thing” I enjoy. I also get to have more control over my money; I get to tell it some of it to do something more significant than to “buy me sodas.”

Your challenge is to find similar places in your spending habits. Here are a few ideas:

1) How much did you drive this week? Could you have walked or taken Mass

Transportation to save a couple of dollars?

2) If you smoke, maybe you should quit. (That was another major savings for

me.)

3) How many movies do you usually rent? Do you already pay for cable?

Maybe, you could take more advantage of your TV service?

4) Do you dine out a lot? Think about turning meal preparation at home into

family time or a social gathering.

I’m sure as you look over your expenses you’ll get ideas that will work for you. Do remember as you peruse your categories for places to make saving cuts, that “cutting” does not necessarily mean total elimination. One goal of budgeting and the control it gives you is enjoyment of life, but that’s hard to do if you are constantly fighting debt or an insecure future.

Get a piece of paper you can use as a work sheet. Make a list of your categories and how much you wish to spend in each. (This may have to be governed by minimum payments in some cases.) You now have a basic budget. I mentioned above that my budget “evolved”. It still is a work in progress and yours will be too; it will have to fit your circumstances—either you will make changes or your budget will. Here is the place for me to note that if you truly do not make enough money, then a second job may be a very real part of you budgeting solution, but do look at spending adjustments first.

Continue to carry your little notebook. Keep your records accurate. Make entries in your ledger daily. If you think you are going to over spend in a category try to make changes in your lifestyle that will keep that from happening. Your budget will evolve over time. It is a natural part of the budgeting process. In fact, in my next post I’ll handle some topics that may have you inclined to make some adjustments soon.

Using your ledger

After you have kept a spending log for 30 days, you will know what you routinely spend your money on. If during this period you have not thought back over the last year or so to consider what you spend occasionally or seasonally, now would be the time to do so. —Get an idea about how much money you devote to gifts, vacations, holiday entertaining, etc.

You should also know all your sources of income and how much they yield. Some people don’t receive a regular pay check. You may work on commission or be self- employed. I will address issue associated with those specific circumstances in a future blog. Right now, I want to work give you your “workbook.”

You are now going to start using you ledger as it was really intended to be used. Start making your entries in categories, not just a list. Your ledger would look something like this:

I recommend a ledger that has at least 10 columns and 31 rows—so you can see all your figures for a whole month. If 10 columns are not enough for all your categories, then you could get a larger ledger, one with more columns (or use two pages).

Write in your categories in the spaces across the top, saving the last column for daily totals. You will use a new row each day (corresponding to the day’s date) to enter your figures.

Your categories organize your records. You want all the money you spend on entertainment in one category. Food related expenditures will go in another. This means you have to make some judgment calls. For example, will the money you spend eating out go under “Food” or “Entertainment” or “Eating Out?” Some people put car payments, fuel, repairs, etc in the category of “Transportation;” others prefer to have a category column for each of those. Here’s a puzzle: I you have a car and decide to ride the bus one day. Do you need a “Bus Fare” category? Probably not. — “Miscellaneous” is a good name for one category. (But you will not want too many expenditures to end up in this column!) We all need to customize the categories to reflect our particular lifestyle, so one person’s may vary somewhat from another’s.

Phase one keep track

PHASE 1

How much did you spend last month? And what did you spend it on? Do you know exactly? Do you have a general idea? Or, no clue? The first step to financial recovery is to know exactly how much you spend and exactly what you are spending it on. You need get a small notebook and a ledger. For the next 30 days every time you spend money, write it down in your notebook. When you get home add it to your ledger.

Having these two items, the notebook and ledger, one of those “little things” that is really KEY to your prosperity project. Nobody feels they need to get these things. Everybody wants to roll their eyes and say, “I can remember for a day.” …But we don’t. We get too busy; distracted. Or, we spend a little more than we know we should and conveniently forget—or “fudge.”

That’s another key. Be brutally honest. This is your project, your life. Who do you think you’re going to fool? Doing the correct little things leads to big changes. They help change your attitude and habits, both of which contribute to your “bottom line.”

Ok, you have your little notebook. It fits in your back pocket or purse. (It’s important to always have it with you.) You go to work, to school, to coffee with friends, sit at home and pay your bills (or have them automatically withdrawn from an account.) As you live your daily life, if you spend any money, write down how much you are spending and what you are spending it on. Even if it is a routine expense. Even if you should not have spent it. Even if it is only one penny. Write it down.

At the end of the day, get out your ledger. Enter the date (and maybe the day) and transfer to it the amounts you spent and what they went for. (At this point, you are being a bit redundant with the two lists. It’s a safety precaution. Your notebook might get lost—it’s replaceable and as long as the master list is in your ledger at home, only minimal information can be lost. Also, most of us don’t want to carry a big ledger around with us all the time—and its function will change later.) For right now don’t worry about putting anything in categories. Just know that you spent $10.00 on gas, $1.75 on a coke, etc. At the end of 30 days you will have quite a list, and it will tell you exactly how much you’ve spent and what you’ve been spending your money on. You’ll begin to see the pattern to your spending. One last note: If at all possible do not use credit cards during this 30 day period, but if you do log any charges (along with any checks or electronic payments) as cash. I’ll tell you why later.

Has this ever happend to you

Have you been there? I think almost everyone has been at one time or another--the day before payday, dead broke. And on top of that, most of the coming paycheck is already allocated. If one thing goes wrong, there’s going to be very serious trouble. We need to do something different. We need to do it fast. We need to do it right. We need help and we know it.

Overwhelmed by bills and financial obligations, we need to start saving money and paying down bills. We need to have something stashed for a rainy day and we need to be saving for a new car and other things. — But, how do we it? What do we allocate to payments and how much do we need to save? We have an idea about what needs to be done, but maybe not a clue about where to start.

Where you start is here. In this blog I am going to give you a step-by-step plan you can use to get debt free and save money.

The experts say we need to have six months of savings for emergencies and we need to be saving at least ten percent of our pay. — Sounds like a dream. (Or maybe a nightmare, right?) It’s a goal. We work towards goals. So for right now let’s believe the experts know what they are talking about and figure out a way to make their suggestions work for us. Let’s set three goals:

1. Getting debt free

2. Saving up six months of money for emergencies

3. Putting away ten percent of our pay for the long term (frequently this means towards retirement)

With these goals in mind, a lot of people think about looking for advice on the internet. As with any other venture, when you take a serious look online for guidance you realize there are a lot of variables. Some will enhance your chances of success and some are, definitely, going to be pitfalls. If you’re new (or maybe even not so new) to this arena, how do you tell the difference? Internet help-sites can be very useful—if you can find one that is consistent. After all, you are looking for what is essentially a business (your personal, financial business) plan. You want something that is workable.

When you surf the internet you find a lot of sites that will give you tips and tricks, but never a complete answer. All that surfing consumes a lot of time; can be confusing, and may produce conflicting information. It’s not uncommon to “run down a lot of ‘bunny trails’” before finding a venue that works for you. The problem is we (often) are pursuing this venture because we need to get our finances straightened out quickly.

What I want to do with this blog is give you one place to come to for answers—a place where we can sort through the miscellany together. I have a plan that you should be able to put to work for you in fairly quick stages. I’m providing you with a single place you can come to for complete information and clear answers for your questions about financial stability. I want to help you achieve financial freedom and get to the place where you are saving money. The plan I will give you is the one I used. It can work for you. You can soon be living a life that is less stressful financially and preparing to retire with dignity.

About me

I am a student of the school of life. Living the life of a working man has given me quite an education. —I learned it’s really hard to get ahead if I’m just a “working joe,” putting in my eight hour shift, with no plan to make the money I earn work for me. I am not a “professional” like a lawyer or an accountant. I’ve held a number of jobs, but my passion is living debt free. Regardless of occupation, I study and apply principles of financial freedom. I’ve tried a lot of ideas and over the years I’ve refined my method for financial stability. Maybe you, too, are somewhere in the process living debt free and building your financial stability? Maybe you have questions about budgeting and saving money? If you do, I’ve probably encountered a similar situation. I’d like to hear your questions. I want to share helpful information; the object always being that we save more money. This blog can be a great vehicle for communication. Feel free to blog me.

About this blog

This blog is intended for people who wish to improve their financial well-being and beyond wishing, BELIEVE they can succeed in doing so. My intention is to convey information that can take anyone from the point of being broke to keeping within their means while living a good life, saving money to cover large expenses/emergencies and provide a generous retirement. You have to be willing to put in the time and effort necessary to improve your financial state. This will be a work in progress, so come back frequently. And if you have any questions or don’t understand something I post, please just ask about it. I will answer. I promise. We all need to save more money