The purpose of this budget is to come up with a system to govern everyday spending. If nothing else, remember this one simple budgeting rule: Spend less money than you make. We are all in tight budget times. The best thing about it is that when you learn the key you can master all the ins and outs of the budget.
Step 1: Take a snapshot of your spending
Every budget starts with sniffing out your spending habits and determining exactly where your money goes on a day-to-day basis. Don’t skip this step: After all, if you don’t know how much you’re spending and on what right now, you can’t decide where you want to spend and on what from now on.
Step 2: Plan your next shopping spree
After you get over the horror of your daily spending, the next step is to go on a virtual shopping spree. Sorry, this trip doesn’t involve a pit stop at the food court; it’s more like a cerebral trip to the mall of your future.
- Grab a piece of paper, a pencil, and a snack.
- Make a list of what you need to buy or do over the next three to six months. These could be physical purchases (like new tires for the car, airfare for the family vacation) or financial plans (such as paying off a credit card, maxing out this year’s IRA or adding to your emergency fund).
- Do the same for planned long-term (one to five years) purchases.
Step 3: Do some simple division
With your money goals in hand, pencil in how much each item on your “wish list” is going to run you on a monthly basis. Simply divide the total amount for those new tires by the number of months until you need them.
Step 4: Set up a no-brainer savings system
With your targeted spending plan in place, it’s time to direct your money towards your goals. If, in the past, you’ve been derailed by daily expenditures or surprise “can’t-live-without” purchases (ahem), here’s an instant fix: Hide your money from yourself.
That’s right: The best way to save your money is to keep your cash out of spending reach by diverting it to a separate savings account — one different from the checking account you use for everyday expenditures. (We can help you figure out the best place to park your short-term cash, too.)
Step 5: Stop mindless overspending
Life is full of temptations. (According to the rundown of my annual credit card spending, “merchandise/retail” is my temptress.) You can stay strong, grasshopper, with nothing more than a few envelopes and a ball-point pen.
The “envelope” method of budgeting will instantly structure your everyday spending. It’s simple:
Come up with a reasonable weekly amount you’ll allow yourself to spend in your biggest categories. (Those are typically “food” (or, depending on your lifestyle, get more specific such as “lunch,” “family dinners out”), “entertainment” (e.g. happy hours, movies, tabloids to pass the time), “transportation” (gas, parking, taxis, public transportation), “apparel/services” (dry cleaning, bangs trim, cute shoes.)
But don’t tax yourself too much: Remember that in dollars-and-cents (and sanity) terms, sweating the big stuff before all else will save you the most coin. Plus, it will leave you plenty of time to procrastinate about stuff besides your finances.
Good luck and tell us how it turns out.