As much as the world hates to admit it, there is no such thing as a money tree. With the cost of living increasing and wages staying the same, the need for a good financial plan is more important than ever.
Before we get started, there is a very important question to ask. Why make a budget? The answer to this question will determine whether a budget will be a success. Planning on making a budget because friends and family think it’s a good idea increases chances it won’t work. However, if the budget is being made to learn how to spend less and live within financial means, then keep reading.
Budget spreadsheets
Some budgeting software is quite easy to use. Alternatively, an effective budget is possible with a notebook and calculator. The first step using a spreadsheet software such as Excel is to make two columns. First record income as well as the day funds will be received. In the next column, record expenses. Next to each expense record the due date and amount due for each month. Some expenses have fixed due dates. These types of expenses include: mortgage/rent, insurance and car payments. Other expenses such as utilities, cable and internet have some leeway.
After recording income and expenses total the two columns and calculate the difference. If there is money left over after expenses, then the budget is on track. If expenses outweigh income, then cash outflows should be inspected more closely. For example, perhaps a cheaper cell phone plan is possible by contacting the service provider. This could reduce communication expenses by as much as 40 percent. Also analyze other service usage as existing plans may be more than is needed.
Another expense to look at is groceries. To cut back on these expenses limit restaurant visits to one per month and instead of ordering pizza make it at home instead. Making pizza is a lot more fun for the kids too! Also look for money saving coupons and price matching.
After income and expenses are recorded, as well as their due dates, it’s time to put the two lists together. Start at the beginning of the month with day one: Write income and expenses in the order they will fall. After that, move around expenses that have flexible due dates. Remember, it’s better to pay ahead than to fall behind. Falling behind mean late fees and late fees mean paying more. Nobody wants to pay more. The good thing about cell phone/cable/internet bills is that they are pretty much the same amount every month. If the money is not available on the due date, but it is earlier, then pay if it before it becomes due.
At this time a clear schedule of incoming and outgoing funds should be evident. If expenses are still higher than income, then go back over the expenses again. There are things on that list that might not be needed. Remember, this could be a temporary situation. Once extra income is possible within the budget, it is time for the next step.
Now that your budget is complete, it’s time for the hard part; sticking to it. Put a copy of your budget somewhere that is easily accessible so you can refer back to it often. Use cash instead of your debit card whenever possible as you will be in more control of your spending. Keep all of your receipts so you can look at the end of the month and see what you spent your money on. You might find you can save more!
Use coupons
Coupons are a great way to save money on food and household products. You may have seen the show on TV promising you $1000 worth of groceries for something like $.50. This is an unrealistic expectation. (Nobody needs 50 bottles of mustard anyways) That being said, you can save yourself about $30 on average. There are many websites out there that will mail you out your coupons, so if you don’t have a printer at home it’s not the end of the world. If you do have a printer, you have many more options. One thing you have to remember is that you don’t need to buy something just because you have a coupon. The best way to do this is to only order coupons for things that you will normally buy. If you buy something just because, you will end up spending more which is counterproductive.
Some grocery stores offer price matching. This means that they will honour the sales prices of other grocery stores in the area. This is convenient because you will be able to get all of the sales at one place. Keep in mind that new fliers come out on Thursdays. The best time to shop is on Thursday night or Friday morning, this is why: Many stores that offer price matching will remove items that are for sale at other stores so that when you do in, they are out. If you go on the Thursday night or Friday morning, usually they wouldn’t have had a chance to remove the sale items yet.
Many stores offer a points program that allows you to save up points for money off, take advantage of this. The application process is usually really simple, you can sign up and receive your card right in the store. Also, many stores offer a credit card. Some stores will offer a discount for charging your purchase on your card. This isn’t a bad idea. Charge your purchase to your card, receive your discount and then pay the credit card immediately. That way interest does not accrue and extra costs are not incurred.
There are many other ways to reduce monthly costs. Adding a movie package to an existing cable account is cheaper than taking the family to the theatre. There are no-fee banking options that can save over $10 a month. Never buy full price as even clothing and shoes go on sale. Other money saving measures include quitting smoking or cutting down on entertainment. These are individual choices. Depending on how serious a financial situation is, bigger changes may be in order. For instance, would it be more cost effective to sell a vehicle and take public transportation?
Build savings
Savings are important. Mostly because financial situations can change at any time and emergency funds help when that happens. It is said that there should always be enough money saved to survive for three months. So, multiply expenses by three and that is the magic number. Depending on how much extra income is available, it might be wise to put a good amount away every month. However, if some expenses include loans such as credit cards, it’s a good idea to look at paying these off first. Start with the card that has the highest interest rate. Generally, department store cards have higher interest rates than bank credit cards. Alternatively, if credit is available, a balance transfer from high interest cards to low interest cards will make payments more effective.
The first month is the hardest. Living frugally takes time and practice, but after time it will become second nature. Pretty soon it will be hard to pay full price for anything. The most important thing is to have a financial plan that works and that is customized to individual cash flow.