Tag: budget

Create a Budget by Asking Yourself Three Questions

I hate budgeting. It forces me to look at my money, realize that I don?t have any, and then limit my spending. (Post-grad life is a blast so far.) But for all of the complaining I do about it off the page, budgeting is one of the most important financial management things I do.

Why should you create a budget?

Running out of money is a lot worse than sitting down and planning out your spending. It lets you figure out how much your lifestyle costs and how much it would cost to change it. Budgets keep you organized and making one doesn?t have to be a headache. It?s as easy as asking yourself three questions:

  1. How much money do you make?
  2. How much money do you get to keep?
  3. How much money can you spend on stuff you want?

How much money do you make?

This is a pretty easy question to start out with. You probably get a paycheck or maybe you?re still getting some help from home (I sure am, no judgement here). It?s an important starting point because it sets up the boundaries of your budget. It also determines how much you pay in taxes. Since a chunk of your money will go to paying taxes, you need to know how much money you make after taxes.

Don?t make the mistake of thinking you get to spend $50,000 because you made $50,000. Get a rough idea of the percentage of your gross income you will owe the government, start socking it away and don’t touch it. You might even consider opening a special savings account to dump this tax money into. This way, you aren’t caught with your pants down when March rolls around.

Related: How to Save Slowly:? A Beginner’s Guide

Don?t make the mistake of thinking you get to spend $50,000 because you made $50,000.

How much money do you get to keep?

Now that you?ve paid your taxes, you know what your disposable income is. However, there are other things you have to spend money on too. You probably also want to do things like eat food and live in a house, so you?ll have to pay for those, too. Figure out what you absolutely have to pay for after taxes:? rent, utilities, insurance, food, transportation, student loan payments, etc.

Knowing how much money you must spend on essentials will also help you figure out how much it costs to live the way that you want to live. This lets you plan your present and your future all at once. It also gives you an inside view on any expenses that you might be able to lower or cut out altogether.

Related:? 7 Ways to Make your Home a Sustainable Source of Income

Knowing how much money you must spend on essentials will also help you figure out how much it costs to live the way that you want to live.

How much money can you spend on stuff you want?

Now that you?ve paid your taxes and bought your food, you can look at what your discretionary income. Discretionary income is money that’s fair game for spending. Whether it?s a nice dinner or a trip to Barnes and Noble (my treat to myself), this is the pool of money that will pay for it.

Keep in mind that you don’t have to spend all of it if just because you have it left over. Whatever disposable income you have leftover can be put into an emergency savings fund, used to pay off credit card debt, attack your student loan balance, or invested. This will give you even more wiggle room for future budgeting cycles.?Remember, the goal of budgeting is to make sure you don’t run out of money, today or tomorrow.

Related:? Emergency Savings – Is It For me?

This all seems like a lot to keep track of!

It is. But you don?t have to look at your whole year all at once. You can look at one month at a time and go week by week to understand how much you spend. If your spending is consistent, then you can just multiply one month by 12 to see what your full year will look like. For example, if you know you spend $1,600 per month, then you’ll spend around $19,200 during the year.

Breaking everything down by shorter time frames makes everything much more manageable. Once you set up a system that works for you, it just takes a bit of maintenance to keep it going. You’re much better off knowing where you stand each month than flying blind with your wallet in your hand, hoping you make it till next pay day.

Related:? Start Impact Investing for as Little as 50$

You’re much better off knowing where you stand each month than flying blind with your wallet in your hand, hoping you make it till next pay day.

So how do you make the budget?

Now that you can break your money down into three categories, how do you actually create a budget? There are plenty of free apps available on the App Store or Google Play that will automatically track your spending and help you create a budget from there. Do a bit of research and pick the free app that appeals to you. Your bank probably also has some sort of tool that helps with budgeting too. My bank has an online dashboard that shows me how much I spend compared to how much a deposit into my account, so I can keep an eye on it that way.

My personal favorite tool is Microsoft Excel. Using a spreadsheet, I can see where my money comes from, where it goes, and how it can grow over time. If I make $60,000 a year instead of $50,000, my spreadsheet will tell me how much money I will have to spend. There are templates available, but if you know how to use Excel, you can prepare a bunch of different scenarios with your money. This also allows you flexibility as your financial needs change in the future.

Your Budget Can Make a Difference, Too

Just because you’re on a budget doesn’t mean that you can’t make a difference with your money.?While you’re saving and planning your money, you can also use your money to invest in companies with positive social and environmental impacts. Budgeting doesn’t have to prevent you from creating positive change with your dollars. If you can incorporate sustainable investing into your budgeting practices, you can grow your money while doing good for the planet and people.

Related:? 4 Ways to Make Real Money with Sustainable Investing

However you decide to budget your money, you should strongly consider doing it. It will give you a clear picture of how much your lifestyle costs today, how much your desired lifestyle will cost tomorrow, and set you up for success as you continue managing your finances. Budgeting is tedious, but it?s worth it to understand how you can get the most out of your money. And if you are just stating out, like me, don’t worry about feeling like you don’t know what you are doing. We will have to budget the rest of our lives. Might as well get started now.

 

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Money: Talk About It

You meet a boy.? Suddenly everything makes sense, and you understand why people would ever consider getting married.? You marry this boy.? Before and after the wedding, over nearly two decades of wedded bliss, you discuss with the boy the potential issues surrounding the fact that you are in academics and will never make anywhere near as much as he does.? Over and over you are assured that this is fine, that he is the primary breadwinner and that he wants you to pursue your dreams of teaching and writing.

Despite being not only in academics, but in the Humanities, for goodness sake, you are pragmatic and understand the importance of having savings, retirement, etc.? Unfortunately, he does not.? However, he has an incredible job with an even more amazing retirement plan, so you don?t bring it up.

I?m here to tell you to do something about it, and do something now.? Stay on top of the bills.? Keep track of spending.? Make a budget and stick to it.? Why?? Not because he is hiding things from you (I mean, he might be, it happened to a friend of mine, but that?s a different story). Do it because this is a marriage, it is a partnership, and you should both be involved in the finances, even if he is the primary breadwinner.? Yes, even if he is the primary breadwinner.? Now, I am not talking about situations where you both keep your finances separate and agree to each pay portions of the bills. Or where one is responsible for bills x, y, and z and the other is responsible for bills a, b, and c.? This is a perfectly fine setup for day-to-day and month-to-month. (Truth be told, however, you want to be on top of it even in this situation because being married means your credit could be impacted by your spouse’s actions).

Unfortunately, my soon-to-be-former spouse is a spendthrift.? He always has been.? No matter how much he or we made, what promotion he got, what wage increases he was given as he changed jobs, we would still often come up short at the end of the month. Every now and then my credit card would get declined at the grocery store.? I consider myself fairly frugal, and watch my spending, especially when I notice money is tight. I want to make sure there is something left at the end of the month.? Still, there almost never was.? When I would ask him how this happened, it was always a vague ?you know, bills and things?.

I never did stop to look through the accounts and see exactly where everything was going, telling myself that maybe I was just miscalculating and needed to be more careful.? I?m not saying he was gambling it all away or anything.? He just doesn?t think when he spends money.? So seriously, sit down and make a budget with your spouse.? Make sure you both stick to it.? If one or the other of you can?t, then enact some kind of allowance to help keep each other in check.? This sounds harsh, and like you?re treating them like a teenager, but realistically, this is going to hurt you both in the long run if you cannot keep your spending in check.

Also, seriously, keep track of your retirement options.? Start saving early.? Save as much as you can.? I know, this is exactly the boring crap your family and econ professor told you, but I mean it.? I am 40.? I have almost no savings and zero retirement.? That?s right.? ZERO.? Why?? Because my beloved/not beloved decided to clean out his 401k or whatever it?s called and put it into a more fluid account.? Initially I agreed to this because we had a few serious emergencies that required attention, but, again, we set no parameters regarding what would happen after those particular fires were put out.? So what happened?? He just kept spending it.? Sometimes on important things, sometimes not.? And I, stupidly, didn?t ask him and didn?t keep track.? So it went from a six-figure cushion to a few thousand dollars at last look. . . but that was several months ago, so who knows what it’s at now.

You?re probably reading this, thinking, ?Holy crap?? I thought this chick was smart or something!?? Frankly, at first I wasn?t overly worried, because he had a great retirement plan with his new job, and I knew he would build it back up quickly.? And yes, I feel stupid and a bit ashamed that I let this happen, but it did, and now I have to deal with it.

So, take a leaf from my book, and be involved in your finances, especially the savings.? It?s essential.? You never know what may happen.? Your spouse may die, he or she may get injured and no longer be able to work, the industry may crash and he or she could lose his or her job, or in my case, your spouse may decide he doesn?t love you anymore, on top of being a spendthrift and you could go from thinking you have a solid cushion to retire on, when in reality, all you have is half a ply of toilet paper.

Check out our articles on?saving for the future and building an emergency fund.


This article is part of a series that chronicles the real life journey of Lillian Epps, a woman navigating a recent divorce. The stories are real. The names have been changed.?Photo by?norwood.

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How I Paid Down My Debt

There have been a few times in my life where I have racked up a large amount of credit card debt. It’s not fun to have and it caused me a lot of stress, especially when it started to seem a little unmanageable.

Both times I managed to pay it off with two simple techniques:

  1. I lowered my expenses
  2. I increased my income

That sounds so simple right? You might be saying, “It’s not that easy, I can’t do either of those things.” Before you throw your hands up in the air, try addressing these two things systematically. Here’s an outline. I used several of these techniques to pay down my debt.

Related Content: DIY Credit Card Debt – A Guide to Permanent Debt Relief

Lower Your Expenses

Write down all your fixed expenses every month. This would include your rent or mortgage repayment, groceries, electricity, water, internet, cable and cell phone bills, and any subscriptions you have. Include the minimum payments on your credit cards and other loans. Add in your public transportation or monthly gas requirements. You should end up with a number that is your minimum cost to live, not including eating out or entertainment. The next step is to create the biggest possible gap between your minimum cost to live and your income. We start by going through every item and seeing what we can cut or reduce.

  • Can we get a roommate or move to a cheaper apartment to lower our housing cost?
  • Can we cut our utility bills through using less electricity, gas, or water?
  • Can we get rid of cable (use Hulu + Netflix) and get a better rate on internet service (call the competitor)?
  • Are there any subscriptions we pay for that we can cancel (cut the gym, run outside)?
  • Can we walk or ride a bike more to get around instead of using a car or public transport?
  • Can we reduce our interest payments by refinancing loans or moving credit card balances to cards with an intro APR, taking out a personal loan, or just asking for a lower APR?
  • Are we paying any bank fees? These should be zero. Ask the bank to remove a monthly service fee and make calls to ask for fees to be refunded. Or switch to another bank.

Related Content: Seven Ways to Make Your Home a Sustainable Source of Income

Increase Your Income

This might seem more difficult to do, but there are definitely actions we can take to make more money.

  • Ask your boss for a raise.
  • Get a second or third job (this has the added benefit of reducing your spending by having less time for recreation).
  • Find additional sources of income. Become an Uber driver, AirBnB a room in your apartment (or your own and stay with a friend for the weekend), do some side consulting work.

Related Content: 5 Ways to Free Up Cash Without a Side Gig

Start Paying Down Your Debt

Once you’ve maximized your income gap, it’s time to start paying down your most expensive debt first (typically credit cards). Build a list of which cards you want to attack and set goals. Maybe go after the card that has a lower balance so you can achieve a victory in two or three months. This is as much a psychological battle so it’s important to create little wins for yourself. Once you knock out a card, put it in a drawer, freeze it in ice, or some other method so that it’s out of use and you are not tempted to rack up a balance again. (Don’t cancel the card.)

Start Saving (even if it’s a small amount)

Something else that’s important is to start saving a small amount in your savings account even as you knock out your debt. Building up that emergency savings fund is crucial because there are times in life you need to have cash on hand. It also gets you in the habit of not spending everything you make and to experience that rewarding feeling of having savings. The amount of emotional security (and lack of anxiety) that brings is priceless.

Change Your Mindset

The final piece, and also perhaps the most difficult, is shifting your behavior of what to do with that new ‘gap’ cash. Critical to paying off debt is keeping a modest lifestyle for a period of time. Taking lunch to work, eating at home, limiting your bar spend (take $40 cash and leave the ATM card at home), and reducing the amount of stuff you buy. Set a goal, keep your head down, and celebrate getting out of a debt hole!

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The Week’s Best Money Reads

I?Don’t ‘Budget’ or ‘Manage’ My Money — Business Insider

“I just monitor.”

What I Learned From My Year of “Things” — Billfold

Wait a minute, are Things > Experiences?

How to Help Louisiana Flood Victims — Time

Baton Rouge needs a hand.

Harvard Business Review’s Quiz Tells You If You’re In Danger of a Layoff — Two Cents?

Are you obsolete?

How Millennials Became Spooked By Credit Cards — NYT

We’re all terrified of bad credit.

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The Week’s Best Money Reads

ICYMI: This week’s best personal finance and career posts from around the web.

The Importance of a ‘Don’t Be Boring’ Budget — The Billfold

Being on a tight budget doesn’t mean you can’t live your life.

The Jobs With the Highest Pay Raises — Two Cents

These industries give the biggest salary boosts.

These airlines are about to start flying to Cuba — CNN

Viva Cuba.

How to Manage Debt While You’re Unemployed — US News and World Report?

It’s possible.

Late Bloomers: How These Self-Made Women Found Success Later In Life — Forbes?

10% of America’s richest self-made women got their starts after 40. Better late than never, y’all!

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