In an effort to get back to basics I’d like to start with the basics of a budget. I’ve received many emails about setting up a budget, so if this is something that you’d like to solidify in the new year, read on.
What is a Budget?
When most people think of a budget they think restriction. And, the reality is that it is just that, let’s not sugar coat it. the reason why you’re reading this blog is because maybe you need to put a few reigns on your finances. Just sayin’.
Living within your means allows you to pay your bills on time, save for a rainy day/retirement and pay down or avoid debt while splurging every now and again. Budgeting essentially helps you plan your finances by listing all future income and the related expenses. Based on those expenses you then make decisions about the necessary and optional items needed to live within your means.
Why Do I Need One?
Most people need a budget. Why? They need a tool to keep them from living above and beyond their means. If you find yourself in the negative at the end of the month or waiting for your next paycheck anxiously, and it’s a week out then you need a budget. A budget helps you plan for planned and unplanned expenses while putting a some funds away for a rainy day or paying off debt.
How Can A Budget Help Me?
A budget will give you much needed insight into your finances which may not have had in the past. It can help your understand where your money is going every month and help you plan for certain expenses. Now, some people are able to live within their means without a formal budget, but most aren’t that lucky and need to create one in order to keep their finances in check.
How Do I Get Started?
It’s easier than you think!
First, take a look at your debit card statements and bills. Based on that determine where your money has been going over the last 1-3 months. Yodlee.com is one of my personal favorite financial aggregation sites if you have multiple accounts at several institutions. Even if you just have one that’s fine too. Sign up for their Money Center and categorize your transactions to get the skinny on your money.
Second, figure out what categories need adjustments and set goals accordingly. Are you eating out too much? Five too many happy hours? Did Target see you too many times over the course of the last month? I can relate, but I digress. All of what I just mentioned are optional items but of course we have necessities like utilities. If your paying too much on your electric bill you may want to consider how you can conserve energy and lower that bill.
Other adjustments to regular bills may include calling your credit card company and asking for a reduction in your interest rate which may result in a reduction in your monthly payment. Take a look at all of your categories and determine where and how you can cut back.
Third, once you’ve set goals, track them! As I mentioned before I like Yodlee.com and Mint.com for just this purpose: tracking spending, creating a budget and goal maintenance.
Until then, take a look at Yodlee and Mint to see how you like it.