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How to Create a Workable Budget – Part 2

Welcome back for Part 2.  We have a lot of ground to cover so let’s get right to it!

In Part 1 we talked about setting up your categories and then figuring out your budget amounts.  Now we’re going to talk about recording all of your expenses, setting your spending goals and how to make adjustments to your budget when necessary.

Step 3) Recording all of your expenses. This is the relatively easy part.  Over the next month you need to make a note of every single expense that you have, especially the cash expenses.  The best thing to do is either have an App that can record them for you or go old-school and use a small notebook to jot them down. This is important so do it well and don’t forget anything.

Once the end of the month comes it’s time to see what the damage is.  Total up everything that you spent and, once you have that number, simply subtract it from the number that you already should have showing your total monthly income.  This will give you one of 2 results.

1) You have a positive number and money left over (yay!).  This is money that you can put towards savings and investments.

2) You have a negative number (boo). This means that you spent more money last month than you earned.

If you’re a #1 congrats!  Use that extra money wisely or, better yet, out it in savings or another investment and then use your budget to save even more next month and the months after. 

If you’re a #2 don’t freak out.  You’re certainly not alone because over 40% of all Americans actually spend more than they earn.  (Hey, why’d you think the economy as such a mess?) What you now know is that you spend too much and, using your new budget, you’ll be able to make the changes necessary to become a #1 and have money left over at month’s end.

Step 4) Setting goals and making adjustments to your budget. Once you have tracked your expenses for a month or 3 you’ll have enough info to start making changes to your spending habits and start cutting down on them where necessary and where possible.

If you have already started doing that it’s time to look more in-depth at your biggest categories and start figuring out how to reduce your spending on them. You can set goals for the big ones and the small ones too.  In fact, sometimes changing the small ones can add up quicker because they use more of your discretionary income in small amounts, which can add up quickly in many cases.

Once you’ve been working with your budget for a number of months you should be able to start seeing patterns of expenses that you can then change, tweak or otherwise adjust so that they don’t break your budget.  You should already be earning more than you spend (or be getting closer to that point) and hopefully putting more in your savings. 

You’ll find that, over time, working within a budget actually frees you from a lot of stress and anxiety that you might have had before, living paycheck to paycheck and not really knowing where your money was going.  Keep at it, use the tools you now have, and keep coming back to see us for more financial tips and advice.

Create Your Simple Budget

Many people have heard about budgets but don’t really know what to do to set one up, let alone use it.  With that in mind we’ve put together a simple plan that will enable the layperson to do just that and have a budget that they can use to track their monthly income and expenses, lower the expenses where needed (or possible), and save more money.  It’s relatively easy to do and should only take about 30 to 60 minutes.  Enjoy!

  1. Gather up all of your bills and receipts for the month and add them up.  (It’s easy but may take a little time.) The more precise approximation of your total expenses the better.
  2. Do the same for your monthly income.  Include your paychecks, interest income, dividend income and any other income that you get regularly, no matter the source.
  3. Make a list of all your monthly expenses using your bills and receipts.  Be as thorough as possible and remember to include any cash you take out of the ATM.
  4. Categorize your expenses as ‘fixed’ and ‘variable’. Fixed are those that stay the same month to month (car payment, mortgage, utility bills) and variable are just that, variable, like lunches and new underwear.
  5. Total both your income and your expenses.  If you end up with a positive number you make more than you spend (a good thing) and if you have a negative number you spend more than you make (a situation that needs to change).
  6. Change your spending habits to cut down on expenses where possible.  Lunches out, your hobby, clothing, sports equipment and all of the variable expenses should be analyzed to see if they can be lowered.
  7. Review your new budget on a monthly basis to make sure your spending is kept reasonable and also to lower the ones that you can.

That’s essentially it.  The goal here is to have something that you can use to;

  1. See what you are spending every month.
  2. See where you can cut back on said spending.
  3. Use the money from those cut-backs to fund your savings, pay down debt or if possible make investments.

A budget is simply a tool to keep your financial house in order. If you have one you will be able to save more, invest more and will have more when you reach retirement. Heck, you’ll just have more for a rainy day or an emergency too, which should lower your anxiety and help you sleep better at night. So start using a budget, like we showed you, and you should see a positive change in your financial status sometime soon.  Good luck.

How to Raise Kids on a Budget

Let’s face it, raising children is expensive, there’s no 2 ways about it. If there’s one thing that you need to do when you have children is to maintain a budget or else those little brats will eat you out of house and home.

I’m joking of course but maintaining a budget when you have children is important, and that’s no joke.  If you do it right however you will have the money that you need to buy them everything they need without going broke at the same time.  Read along below and I’ll explain how and give you some Tips on raising kids on a budget.

One of the first things that you’re going to need to do is determine as closely as possible exactly what you need for food, clothes and other basic needs, and then stick to a number based on what you can afford and still be able to pay your bills and put aside 10% in your savings. While you’re doing this you can also talk to your children about it and explain why you, and they, need a budget. Don’t make it too technical but be firm.

Once you know that amount it’s time to start cutting back to

When it comes to food, there are a lot of ‘lower-end’ markets where you can get meats and more expensive food items at wholesale prices, and there are of course wholesale clubs. Buy store brand everything in your favorite supermarket.  They’re the cheapest and the products are all very similar in quality.  Trust me, the kids will never know.

For children’s clothing, if you’re really on a budget, there are thrift stores and 2nd hand stores everywhere today.  If you’re on a moderate budget stores like Kohl’s and others normally have the best deals and Wal-Mart is the king of cheap but decent quality children’s clothes.

Use the children’s furniture as long as you can and take good care of it.  If you need something else there are places online like Craigslist where you can find tons of used furniture and other items like bikes, toys, clothing and much more for incredible bargains which makes up for them not being pristine. Yard sales and estate sales are also a great idea when you need stuff for the kids.

Remember that it doesn’t mean you don’t love your kids just because you don’t buy them ‘new’ things.  Used, in most cases, is a very close 2nd and will save you a ton of money.  They kids will get used to it after a while too and the experience may even teach them a valuable life lesson. Good luck.

 

 

Travel Tips on a Budget

Even with the price of gas skyrocketing there are still plenty of bargains to be found when travelling in 2012.  During the last few years many people have learned that using the internet is a great way to find great deals, especially at the last minute.  Here are a bunch of excellent tips you can use to save money on your next trip, whether it’s across town or around the globe.

 

Book a Hotel at the last minute.  Sounds crazy, right?  It isn’t so much anymore however as younger travelers have started treating going on a quick vaca like going to the movies.  Hotels have had to adapt to this and there are now plenty of great, last-minute rates all over.  Check Expedia and Priceline before you go and you’ll be surprised at what you find. (Of course don’t do this on major holidays and peak season.)

 

Go where the money isn’t.  Countries that are in deep financial trouble, like Greece, will have much lower prices as they try to attract tourists and their travel money.  It’s slightly risky but you can find some incredible deals.

 

Travel where they are building lots of new hotels.  More hotels mean more competition for your dollar which equals better rates.  In Berlin, Germany that’s what’s happening right now.

 

Go where the big celebration was.  After Mardi Gras, the World Cup, the Olympics, the Superbowl and other huge festivals and major sporting events the price of everything drops as the city where the event was held goes through withdrawal.  Their loss if definitely your gain.

Take the bus or the train, especially once you’ve arrived at your destination.  In Europe you can travel practically anywhere by train and they’re clean, fast and safe.  If you’re keen to see all the major landmarks of a certain state or country take a bus tour.  Either way will save you a ton over flying.

 

Take a vacation close to home and use the car.  Sure gas prices are crazy but, if your destination is within 6 hours drive, you’ll spend much less than on air travel and have a mode of transportation when you’re at your destination.

 

There you go. Plenty of travel tips for 2012.  Now go out and have some fun!

 

Create a Household Budget that Works

One of the basic rules in managing finances is the use of a budget. This is true for our government, schools, hospitals and any other entity with income and expenses. Yet surprisingly, approximately half of the households in the US do not have a budget in place for managing personal finances. Those with a budget in place often find it difficult to make the numbers work each month. To create a budget that will work for your family, you must first understand the purpose of budgeting finances.
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Budget and Net Worth Calculators

Found this nice set of budget, net worth, and investment calculators for Excel.


Close Your Budget Gap

Your Budget Gap

Don’t look now but your budget gap is showing. It’s the difference between what you think you spend and what you really spend. And it’s not a matter if you have one, just how large of one you have.

How do you close your budget gap? By becoming a spending awareness marauder. If you’ve never created a budget, or if you’re tired of your old budgeting system, the easiest way to get started is to create a minimalist money map.

A minimalist money map is a simple way to take your spending temperature and take corrective action when necessary. Here’s how to set one up.
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Having The Talk with Your Kids

Do you (or did you) dread that day? You know, the day you knew you had to sit down and have “the talk”? Yes, I’m talking about the money talk. This has been a hot topic in my household lately. Our three kids are certainly old enough to be helping around the house.

And so the debate was tossed around the house recently. Do we pay for chores? If so, how much? How many chores should we pay for?

If you’re having trouble getting into the money conversation with your kids, Jean Chatzky, personal finance book author, is spearheading a site just for you.

Her website, moneynighttalk.com, walks parents through the how-tos of a money talk. [The site’s] focus [is] on Chatzky’s sample questions and answers, such as:

If money is tight in our house right now, what do I say? “That money is tight in your house right now. Believe me, your kids already know this. They sense the tension. You can bring down everyone’s blood pressure by talking and empowering your kids to help you save on the family budget.”

How long should a money talk last? “Don’t force yourself to adhere to a timetable. Even a 15-minute conversation over dinner can make an impact . . . and assuming it goes well (which it will), you leave the door open for follow-ups.”

What if I’m asked a question I don’t want to answer? “You mean like, `How much do you earn?’ It’s OK to dodge that one, because you don’t want to be the cause of competitive earning in the neighborhood. Twist it, and say: `Let’s talk about how much it costs us to live as we do.’ ”

I came from a household that was mum on most financial topics. It wasn’t until after I started college that I began to understand the depth of my ignorance. I didn’t know how to write a check much less how to create a plan for my money. Money was one of two things—in my wallet or not in my wallet. And when I had it I usually didn’t for long.

If you have kids or are planning to, check out Money Night Talk.

Read more at the Miami Herald.

Drafting Your Own Will Online

Do you have a will? I don’t. I also discussed my excuses for not having a will a few weeks ago. I’m happy to report that I’ve moved one step closer to making it (the will) happen.

While doing a little research, I ran across a recent NYTimes article that hashed out the results of an online will experiment.

The author, a will newbie herself, constructed a will on four different sites. The twist?

After testing four programs, I asked an estate-planning lawyer to look over the final drafts for errors or potential issues.

Although I’m not a fan of lawyers, I liked this approach. It lends a sense of authority to the process.

The verdict? Only after I tested all of the online services and analyzed their differences did I really feel as if I had a solid handle on the options available to me and what might be missing.

So, each online will service was adequate but not necessarily complete. As is usually the case, much depends on your home state. Since this test took place in New York, I can imagine there were many nuances before the final, polished product came off the press.

The following are the online will services used in this experiment:

Quicken Willmaker
Legacywriter.com
LegalZoom.com
BuildaWill.com

The risk to using a service like one of the above?

The biggest risk might be summed up by Phillip J. Kenny, a lawyer in McLean, Va., who said that one client came back to him after looking at a software package and said, “I don’t know what I don’t know.”

Read more about drafting your own will online.

Business Budget Worksheets – Download

After reading and commenting on a post at BibleMoneyMatters about business income tracking, I used my caffeinated spreadsheet marauder skills to build a few more worksheets.

The following worksheets are included in the downloadable Excel workbook:

Income Replacement – Calculates what you’ll need to earn as a business owner to cover your living and business expenses. This is a biggie because it’s easy to forget that your business will also require monetary care and feeding.

Schedule C – This is a sample schedule C with an array of expenses you can write off throughout the year. This isn’t an all inclusive list. Please feel free to tailor to your needs.

Estimated Taxes – Shows you, based on net business income, what you’ll need to pay each quarter. Or, if you’re like me, how much you’ll owe at the end of the year.

Day Rate – Calculates what you’ll need to earn each day to reach an income goal. Assumes three separate billable days/cycles—160, 200, and 230.

Loan Repayment – Simple loan repayment calculator based on annual interest rate, loan length in years, and amount borrowed.

Cash Flow – Predicts yearly cash flow based on annual income and annual growth rate. Kind of a neat toy to play with. Allows for much daydreaming and good feelings.

Let me know what you think or if you have any questions.

Download files:
Business Budget Worksheets (.xls file)Excel – 97-07
Business Budget Worksheets (.xlsx)Excel – 2007+

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