Budgeting 101

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Originally posted on Money with Merne’s Facebook Page on January 30-February 3, 2017:

Let’s talk about Budget Basics!

Are you into spreadsheets, pencil and paper, apps? Pick a medium you like and know you’ll stick with. List/input all your monthly bills and regular expenses. Mortgage/rent, daycare, car payments, cable, cell phones, student loans, etc. I don’t care how small the expense. My husband has a dollar shave club subscription for $6/month. It gets its own line item because it’s the same every month.

For variable expenses, one trusted method is the Envelope System.  Allot yourself certain amounts for different categories like groceries, eating out, entertainment, clothing, etc.  Then take that amount out in cash and put it in an envelope for each category (ex: $200 for groceries for the month).  When the cash is gone, you can’t spend anymore in that category!

For items that you pay on an annual or semi-annual basis, divide the cost over the number of months between payments and funnel that monthly amount to a basic bank savings account you don’t touch. For example, you can get a better deal on car insurance if you pay once or twice a year. $500 over 6 months is just under $85/month. Make a line item in your monthly budget for car insurance at $85 and transfer $85 a month to a savings account. When it’s time to pay the bill, you’ll have the $500 you need without any stress of coming up with it!

Now for the moment of truth! Add all of the budget line items up and subtract from your income. Is it positive or negative?? I hope you have leftover and can start allocating money to savings and debt repayment. If it’s negative, you’ll have to really evaluate your expenses. Anything you can get rid of? Can you tighten your belt on the variable expenses like eating out and entertainment? Whatever you do, make sure you’re committed to it and stick with it. As they say with weight loss, it’s not a diet, it’s a lifestyle!

Budgeting is a responsible thing to do but it also allows us to achieve our goals, our dreams! Being debt-free. Owning a car, a home, going on that dream vacation. Make sure you establish your goals and check in on them regularly to see your progress. We do a monthly “net worth calc” where we list the balances of all our savings, investment and loan accounts. We’ve been doing this for over 5 years and it’s amazing to see how far we’ve come. I’ve taken out a car loan and paid it off. We saved up for our wedding. We saved a 20% downpayment and bought a house. Started a college fund for our child. Watched our retirement savings grow! Feels great! I want you to feel that great, too!

 

Budgeting: It's the first step to successfully managing your finances!

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