Oh, yes, the dreaded “B” word. The word that will make you groan, moan and run for cover. But unless you are one of the very few, very fortunate individuals in the world who can go on spending sprees with wild abandon, you need a bu- budg- budget!
Sitting down to create a budget doesn’t have to be a painful experience. Angie Strunk, the managing director of Cincinnati-based Capital Concepts, shares some tips for creating a pain-free budget even you can stick to!
The first step, Strunk says, is to start keeping track of where every penny of your money goes. That means every time you take money out of the ATM, every time you use your check card – even if it’s only $1 – keep track of where it goes. The best way to keep track of everything is to invest in a money management software like Microsoft Money or Quicken. Strunk recommends Money because it is more user-friendly and comes pre-installed on most new computers. Quicken must be purchased separately and is not as easy to navigate, but it is the only option for Mac users at this time.
Quicken has a new service they offer for $2.99 a month called Quicken online. This service claims to keep your most updated balance easily accessible from the Web at any time, and still keep your information secure.
Both programs can be downloaded from the internet at their respective Web sites.
Both of these programs work with your online banking to import transactions directly into a register. They will automatically categorize expenses and create a budget showing how much money you spend and what you spend it on each month. You can go back and tinker with your budget to show it what you would like to spend on each category each month and it will show you how much over or under your budget you are.
Have a Plan for the Unplanned
Once you have your budget set up, the trick is being able to stick to it. One problem people tend to run into is unplanned expenses. You know what I’m talking about: Things happen that aren’t in your budget. Your car breaks down, your dog catches a rare illness or your roof starts leaking. Sometimes it seems like anything that can go wrong will. To keep from falling off the budget bandwagon the first time trouble comes your way, Strunk suggests that everyone have a $1,000 emergency fund they can fall back on. She says this will keep you from using money for other things or using a credit card and creating another bill.
Another way to make sure you stick to your budget is to start planning for Christmas and birthdays in January. Figure out who you are buying for, how much you plan to spend, and set aside a portion of it each month. Then in November you aren’t scrambling to buy gifts and in January you aren’t struggling to pay your credit card bills. Strunk says that 28 percent of people carry credit cards debit from one Christmas to the next. Be one of the 78 percent that is prepared for Christmas and start planning ahead!
Saving money is one of the hardest things to do, especially when you have bills due every month. Strunk suggests saving your leftover change at the end of each day. “It’s money you won’t miss,” she says. “And it adds up!” Sometimes to hundreds of dollars after just a few months!
Another way to prepare for unexpected expenses is to take advantage of a healthcare flexible spending plan. You set up the plan to have a certain amount of money available to you throughout the year for approved medical expenses. The money you have set aside for the flexible spending plan is taken out of your paychecks pre-tax throughout the year – so you save money while having an emergency medical fund at your disposal through the year. Just be careful not to allot more than you need – this is a use it or lose it type of plan. If you aren’t sure if your employer offers this type of program, ask your human resources representative.
You can also save money each month by raising your deductible you pay for your health and car insurance. Usually, if you raise your deductibles from $500 to $1,000, your monthly premium goes down and it will free up some cash that can be spent elsewhere.
With all the talk about so many people losing their homes, not much attention is being paid to the fact that interest rates are still pretty low. According to Strunk, if you are still paying more than 6 or 7 percent interest on your home mortgage, you should consider refinancing your home to get a lower interest rate locked in with they are still down.
Still, some people can’t sit down and create a budget and stick to it without help. If you have created a budget and have tried for a few months to make it work and just can’t, maybe you should consult a financial planner for professional help. They will sit down with you, help isolate problems with your budget and help you stick to it.
A problem Strunk sees with many people, especially young people, is not being able to allocate money properly. Dave Ramsey, a millionaire who lost it all to debt and uses his experiences to give people practical, common-sense advice for their finances. He developed an envelope budgeting system. Each month, make an envelope for each category of spending and fill it with cash in the amount you have allotted for that category. When you’re cash is gone, you are done spending. That’s the easiest way to stick to your budget.
Strunk recommends Dave Ramsey’s Web site because it’s full of useful budgeting information and information for getting out of debt.