How to Create Realistic Budget

Posted on August 9, 2013. Filed under: Finances | Tags: , , |

budget-clip-art(3)So you have decided you want to be more accountable for your money, but where do you begin? With a realistic budget of course! Realistic being the operative word which means you have to create a budget that incorporates all of your expenses and when they need to be paid. If you are married, creating a budget should be something you do together.

Below allocating spending, you must first identify your expenses. Start off with itemizing your fixed expenses such as your mortgage/rent, utilities, loan payments, insurance etc. Then list out those unfixed expenses such as groceries, entertainment, and other misc expenses. Dave Ramsey’s Monthly Cash Flow provides an excellent start to begin recording your spending.

Warning: if you have never tracked your spending before this may be easier said than done. In fact, it can take a few months to achieve an accurate budget. I suggest that once you start the process you track your expenses more closely to ensure that you are allocating the right amounts.

So now that you know what you spend, how does that compare to what you are bringing in? Are you over-budget or under-budget? When creating a budget, I personally suggest that you use Dave Ramsey’s $0 balance budget. This means that all your money is accounted for and that your balance at the end of each month is $0. Here are some suggestions for how to achieve this in either situation.

Under-budget: Floating on water

So you make more money than you spend! Great, you are all set right? Wrong! Now you need to evaluate your budget to make sure that you are investing in the right things. These tips are taking directly from Dave Ramsey’s Financial Peace University course.

  • Do you have the proper insurance coverage? – life, health, auto, home/renter’s
  • Do you have adequate saving or are you contributing to building your emergency fund? You should have at least $1,000 in savings to begin with and eventually should be working towards having 3-6 months worth of expenses saved.
  • Are you using credit cards to make purchases instead of paying for things in full? If so, take the scissors out and get rid of them fast. The idea of a budget is to not spend more money than you make. Credit cards almost encourage you to break your budget. Not to mention, they put you further in debt and increase your fixed monthly expenses.

So are you seeing red now? If so, skip on down to the over-budget section.

Still under-budget?

  • Do you have debt that you are paying more towards to be debt-free quicker?
  • Do you have a full 3-6 months worth of expenses saved?
  • Are you contributing 15 percent of your income towards retirement?
  • Are you saving for your children’s college? (If applicable)

Your budget is looking more like $0 now, huh? Congrats! All your money is accounted for and you are making preparations for your future.

Over-budget: I’m drowning, help!

So you spend more than you make? Believe me, you are not alone. But in the words of Maya Angelou, “When you know better, you do better.” So now you must evaluate your budget and see where you can make cuts. Take a look at my other posts to see how you can cut your household spending and entertainment.

Sometimes it’s not this easy. If you are spending more than you make you need to either decrease your spending or increase your income. It’s that simple. If you are drastically over-budget, you may have to resort to more extreme measures. Downsizing your lifestyle may be in order or filing bankruptcy may also be something you have to consider. These are not decisions that should be taken lightly but the one thing you can’t do is continue the cycle of living beyond your means. Get help if you need it but do not ignore this new insight.

There you have it, your first step to controlling your money. Remember budgeting is a process and mastery comes over time. Pat yourself on the back for taking this huge step and feel free to comment on this post if you need any encouragement along the way.

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Financial Peace — Here We Come!

Posted on February 25, 2013. Filed under: Finances | Tags: , , , |

member_kit_spread_newIt’s official! I have purchased my Financial Peace University supplies and the hubster and I will be starting our 9-week course next Sunday. I am super-giddy about the opportunity to partake in this class. I read Dave Ramsey’s book, Total Money Makeover, last summer. I was very intrigued to say the least. Once your mind is introduced to a new way of thinking about financial success, it is very hard to go back to spending frivolously.

The hubby and I really started budgeting and trying to follow Dave’s steps this year and it hasn’t been easy. I know this class will help us become more in sync and adhering to tighter timeframes.

Our road to financial success has been very empowering. I feel like I control my money and not the other way around. I can rework my grocery budget to accommodate any unexpected expenses. We proactively save for those expenses that we can anticipate. It’s a great feeling to be in the driver’s seat (especially for a control freak like me!)

Additionally, we are losing the ‘tude that debt is a way of life. This year our goal is to pay off all our unsecured debt and to not rack up any new debt. That’s right — no credit cards for us! We are also evaluating our secured debt to try and get better interest rates and/or loan terms to get those suckers paid off as quickly as we can.

Most importantly, we are open with our children about “the plan” because ultimately we want them to be smarter about their financial decisions in the future.

Stay tuned for updates on our road to financial success. Of course, don’t forget to look at my previous posts for tips on how to cut your spending.

Not So Extreme Couponing
Fun For Less

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