I don’t know about you, but I always start the New Year off with good intentions. Great intentions, really. And pretty much every year, a few of my resolutions involve getting things in shape: my house, my finances, my closet, myself… the scariest one is always my finances. Well, this year I’ve resolved not to let that financial piece scare me anymore and to really make good on that resolution. I mean honestly — it’s money. I deal with it all the time without being scared, so why does it seem scary when I call it my “finances” instead? (Hmmm, maybe I’ll try to think of my money as “finances” next time I’m at the mall…)
Here’s what I’m doing this year: taking one step at a time to make sure I’m getting my money’s worth when it comes to my own money.
To get started, I’ve been working on budgeting. I know — “budget” has the same feel to it as “diet,” doesn’t it? But stay with me here — it doesn’t have to feel that way. A budget really just means you have a plan for your money, and that you are keeping track of where it goes so you can adjust your plan if you need to. I know I can do this, and you can too.
Here are a couple of tips that have really helped me:
- Teamwork. If you aren’t the only one in your household, get the whole gang on board from day one! A shared understanding of what you are doing and why can help keep things on track.
- Make a list of all your current expenses and spending. There are some helpful worksheets on line so you don’t forget anything — here are a couple that I like: http://www.momsbudget.com/ and http://www.oprah.com/money/Suze-Ormans-Monthly-Expense-Budget-Calculator.
- Be realistic! Start with what you typically really do spend, not what you wish you were spending (don’t worry — we’ll get there). It helps to look back at the previous month or two to get a sense of what your current spending habits are.
- Compare money coming in to money going out— how are you doing currently?
- Prioritize. Rank your expenses in order of what must be paid (such as loans), what has some wiggle room (like groceries or maybe your phone plan), and what’s mostly discretionary (entertainment, clothing, etc).
- Don’t forget items you would like to include that you might not currently be spending on: savings, an IRA, a 529 education savings plan, etc. This type of spending is the basis for a stable financial future. Factor it into your priority list.
- Be prepared. It’s important to build an emergency fund. This is a savings account that you use for unexpected expenses like car repair or losing your job. Try to start with at least $1,000 in this account, and aim for a total that is equivalent of 3 months’ salary. And remember: as my friend’s husband says, a great find at Target is not an emergency!
- Allocate. Starting with how much money you bring in each month, subtract out the expenses that are necessary and fixed. Then work your way down your list of priorities, and decide where you can make adjustments to your current spending so that your expenditures don’t exceed your income.
- Keep track. “Spend” your money on paper before the month begins, then hold yourself accountable throughout the month by keeping track of what you actually spend and comparing that to your budget. It might help to carry a (pretty) notebook or save every receipt in an envelope.
- Rinse & repeat! Near the end of the month, assess how you did and revisit your budget. Then follow the same process of allocating your income before the next month starts. Continue tracking your actual spending throughout the month. Do this for two months to get the hang of it before you make major changes to your budget; then continue to keep track and hold yourself accountable.
I’ll admit it — getting the hang of budgeting has involved a little trial and error. If this stuff were easy, there wouldn’t be so many people in debt! Establishing and maintaining a budget takes some work, but the benefit of financial stability is worth it. You are worth it.
So, hello budget and goodbye icky feeling of not knowing where my money went!