Friday, March 9, 2012

10: budget 101

This post is a continuation of the post 10 ways to reduce your monthly expenses. Here is number ten on the list. I intentionally haven't included an amount we saved with this, because budgeting can help you save a lot, or just better help you reach your goals.

10. Make a budget

I must confess, when we first created a budget for our income/expenses, I was skeptical. I was afraid that it would mean a complete lock down on the money, and absolutely no more fun.

After sitting down and figuring out how much we make and how much we spend on things that must be paid for (electricity, rent, food, etc) helped us get a better grasp on our financial situation. We knew how much leftover income we had after living expenses, and could budget it out based on how much we want to save.

Having a budget for things like going out to eat, seeing movies, etc (what we have categorized as ‘entertainment’) has helped us spend less on them.
Before we made a budget, it wasn’t uncommon for us to spend an extra $400/month and have no idea where it went at the end of the month. It had been spent on the occasional cookie, a cup of coffee every so often, lunch out at work a couple weeks a month, nights out, etc. 

Having the budget also forces us to prioritize what we want to do as far as entertainment goes. It makes us think about if we want to go to breakfast this Saturday morning, or save the money and get a nice dinner next week. It makes spending money very intentional, which is what prevents the huge credit card bills at the end of the month due to impulse buys.

Three easy steps to a budget:

1. Determine total income

2. List all mandatory payments

3. Subtract mandatory payments from income and determine how to allocate extra income

Here is an example of a budget, similar to what Alex and I use. (Remember, this is just an example, things can be added/subtracted based on your life.)

Monthly Income
Income 1
1500


Income 2
2000







Budget
Amt Income Left
Expenses
Tithe
350
3150

Food
200
2950

Rent/Mortgage
1000
1950

Couch Payment
50
1900

Student Loan
70
1830

Car 1
82
1748

Car 2
283
1465

Cell Phone
84
1381

Insurance
185
1196

Natural Gas
80
1116

Internet
53
1063

Entertainment
150
913

Cars (Maint + Gas)
150
763

Savings
500
263

Other
263
0

Keep in mind that your budget should reflect what is important to you. For example, if saving for a house is a priority, savings should be increased before entertainment.

Happy budgeting!

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