Fall Budget Challenge Step 2: Create Your Budget

Posted on Flickr by  Tax Credits

Posted on Flickr by Tax Credits

One month ago we started the fall budget challenge! If you missed the first budgeting post, check it out! Hopefully, you have tried tracking your spending for the past month. If not, it is never too late to start! This week, I will show you how to create your budget for the next school year.

Before we begin with the budgeting, let’s spend some time learning from your hard work of tracking your spending. If you were able to track your spending for the last month, great job! If not, you can certainly use your bank and/or credit card statement as a start. Take a look, where does most of your spending go? Housing? Car? Groceries? Entertainment? Dining out? Are there any surprises in your spending? Is your spending going to the places that you want it to go to? Are you spending in accordance with your values? What spending habits do you have, both bad and good? One of my biggest surprises when I first started tracking my spending is how much of my money goes towards groceries and eating out. Check out this article “Confessions of a Foodie” from last summer for more information. Keep these discoveries in mind as you create your budget.

Now, how to create a budget:

1. Choose your system: You can choose to create and track your budget using a variety of different tools. You might want to use the same one that you used to track your spending, or switch to another one.

  • Worksheet: Some people still enjoy putting pen to paper, if that is you check out this worksheet.
  • Spreadsheet: Excel offers a variety of different worksheets. This site features a few good templates that you can use with Excel or Google Docs.
  • Envelope System: Create your budget then take out cash for all of your expenses and put cash in specific envelopes. You can only spend what is in the envelope. For more information check out this link.
  • Budgeting Software: There are a variety of different programs out there; one of the most popular is Quicken.
  • Online Site: Again, there are a variety of sites. I use Mint.com because it syncs with my bank account, categorizes my transactions and tracks my budgets all in one place. You might also check out these personal finance apps.

2. Create your budget: The goal of the budget is to make sure that you are both living within your means and spending in accordance with your values. Over the past few weeks you have tracked your spending. You will want to use this information to help you create your budget categories as well as decide on how much money to allot to each category. Begin by calculating your different streams of income such as student loans, scholarships, job income, gifts, etc and how much you have in each category for each month. Then, calculate your different expenses making sure to include both needs (bills, rent, tuition, groceries, gas, etc.) and wants (dining out, coffee shops, shopping, entertainment, etc.). You can create as many or as few categories as you like, it is just important that every specific spending item fits into a category.

Here are some questions to ask yourself as you begin outlining your budget:

  • Prepare for the Unexpected: Do you have an emergency fund to draw on if you lose your job or incur unexpected expenses (car repairs, medical bills, etc.)?
  • Plan for the Future: Do you have a savings account that you regularly contribute to? Even a small amount (such as $25) every month can add up. Are you investing in your retirement? Are you saving up for a large purchase (computer, car, house, etc.)? If you have student loans, could you pay off the interest now?
  • Save for Occasional Expenses: Do you have a way to pay for occasional expenses? Make sure that you take into account how you will pay for Christmas and birthday gifts, travel for the holidays and other occasional expenses so that they don’t end up breaking your budget.
  • Problem Areas: As you tracked your spending did you find any problem areas? If so, gently challenge yourself to be more frugal in those areas. Remember to start out slow, it takes a long time to change a bad habit.
  • Have Fun: Where is your discretionary spending? Many people when they are first budgeting forget to give themselves some room to have fun. While it is important to be frugal and align your spending with your values, it is important to have some space in your budget for the fun stuff such as dining out and entertainment.
  • Be Flexible: It can be difficult to precisely predict your spending, especially if this is your first budget, so be flexible. If you have to switch some things around to better fit you, that’s fine!

Happy Budgeting!

Join the Conversation: What are your budgeting tips?

Summer Budget Challenge: Create Your Budget

Throughout this summer we have been working together to track our spending, align our spending with our values and now create a budget. If you missed the first segment or the second segment of the Summer Budget Challenge definitely check those out. This week, I will show you how to create your budget for the next year.

1. Choose your system: You can choose to create and track your budget using a variety of different tools. You might want to use the one that you used to track your spending, or switch to another one.

  • Worksheet: Some people still enjoy putting pen to paper, if that is you check out this worksheet.
  • Spreadsheet: Excel offers a variety of different worksheets. This site features a few good templates that you can use with Excel or Google Docs.
  • Envelope System: Create your budget then take out cash for all of your expenses and put cash in specific envelopes. You can only spend what is in the envelope. For more information check out this link.
  • Budgeting Software: There are a variety of different programs out there; one of the most popular is Quicken.
  • Online Site: Again, there are a variety of sites. I use Mint.com because it syncs with my bank account, categorizes my transactions and tracks my budgets all in one place.

2. Create your budget: Over the past few weeks you have tracked your spending and aligned your spending with your values. You will want to use this information to help you create your budget categories as well as decide on how much money to allot to each category. Here are some questions to ask yourself as you begin outlining your budget:

  • Prepare for the Unexpected: Do you have an emergency fund to draw on if you lose your job or incur unexpected expenses (car repairs, medical bills, etc.)?
  • Plan for the Future: Do you have a savings account that you regularly contribute to? Even a small amount (such as $25) every month can add up. Are you investing in your retirement? Are you saving up for a large purchase (computer, car, house, etc.)? If you have student loans, could you pay off the interest now?
  • Save for Occasional Expenses: Do you have a way to pay for occasional expenses? Make sure that you take into account how you will pay for Christmas and Birthday gifts, travel for the holidays and other occasional expenses so that these expenses don’t break the bank.
  • Problem Areas: As you tracked your spending did you find any problem areas? If so, gently challenge yourself to be more frugal in those areas. Remember to start out slow, it takes a long time to change a bad habit.
  • Have Fun: Where is your discretionary spending? Many people when they are first budgeting forget to give themselves some room to have fun. While it is important to be frugal and align your spending with your values, it is important to have some space in your budget for the fun stuff.
  • Be Flexible: It can be difficult to precisely predict your spending, especially if this is your first budget, so be flexible. If you have to switch some things around to better fit you, that’s fine!

Happy Budgeting!

Join the Conversation: What are your budgeting tips?

BUDGETING 101: ABCs of Maintaining a Budget

This is the second post in a two-part series on creating and maintaining a budget. If you missed the first part, check it out.

Automate as Many Things as Possible: Automating your bills and savings can help you control your spending. You don’t have to worry about paying bills late, just don’t overdraw!

Buy Only What You Need: It is easy to get suckered in by a good deal and buy something that you don’t need. Don’t let anything sit on the shelf!

Community: Buddy up with a friend who is also on a tight budget. Be intentional about encouraging and challenging one another. Think of fun and frugal things to do together!

Ditch the Cards and Use Cash: It is a lot easier to visualize how much you are spending if you are using cash rather than just swiping a card.

Envelope System: Take out cash for all of your expenses and put cash in specific envelopes. You can only spend what is in the envelope. For more information check out this link.

Flexibility: It’s important to be flexible since unexpected expenditures do come up.

Grow your Emergency Fund: When you are on a tight budget it can be difficult to set aside a large amount of money right away so continue growing your fund every month.

Habits: Look long and hard at your spending habits. Do you have any that are really wasting your money?

Interest on Loans: If you can begin paying the interest on your debt while you are still in school this will help you a lot in the long run.

Job: Do you have a hobby that could make you some money? Do you bake desserts or knit sweaters? Could you tutor someone?

Keep A Close Eye on Your Cash Flow: Just because you have a budget doesn’t mean that you shouldn’t look over all your transactions on a frequent basis.

Look on the Bright Side: It is really important to keep a positive attitude about budgeting. Budgeting should help you to focus on what you CAN afford rather than what you can’t.

Make Space for the Fun Stuff: Although your budget might require you to take some of your fun stuff down a notch, these activities should never be eliminated completely.

Never Borrow More than You Need: Only borrow what you need. Remember this is not “free money” you will have to pay it back some day.

Occasional Expenses: Don’t forget about Christmas, birthdays or taxes, make sure that you set money aside for these throughout the year so that they don’t break the bank.

Patience: Whether it’s your first time or your fiftieth time creating a budget, it takes time to adapt to a new system and control bad spending habits.

Quiz: Wonder how well your budget is working? Take this quick budget assessment quiz.

Reward Yourself: Rewards can help you to stay motivated even when you are feeling constrained. Some rewards might be a nice dinner out, concert tickets, vacation or dessert.

Shop Around: Be a conscious shopper. Consider buying used items instead of new.

Thirty Day List: This is a great way to determine if you really think it is worth it to buy a new computer, car, technological gadget, vacation, etc. Write down the item that you want and the date, if you still want it after 30 days then see how it fits into your budget.

Use Prepaid Cards: A modern update of the envelope system, get prepaid cards from the bank and use them for specific expenses. For more information check out this link.

Vision: It’s important to have a positive vision in mind (like being debt-free, giving more of your money away, or saving up for a large expense) that you can remember when your budget gets tight or you start feeling deprived.

Watch Your Household Costs: If you pay for your heat, consider turning the dial down a few degrees and putting on a sweater. If you pay for your electricity, make sure that you are turning off the lights before you leave the room.

X-amine Your Budget Regularly: Do you think that this budget still reflects your priorities? Did you over or under-estimate your budget in any categories? Is your budget realistic?

Your Savings Account: Treat your savings as a bill that has to be paid every month. Put it at the top of the list.

Zillions of Credit Cards: Cut down on the number of credit cards in your wallet so that you are not tempted to use them for extra expenses.

Join the Conversation. How do you maintain your budget?