For some of you this may be the first time you have ever had to budget your money, handle bill paying, or even give handling finances a second thought.
The task of budgeting may seem daunting at first but, the reality is it’s not that hard and having a budget is like having a road map to your financial success now and in the future.
Where do you start?
- Track expenses. First and foremost you need to find out where your money is going! Track ALL of your spending for 2-3 months. Include every trip to the grocery store, gas station, and dollar you give your child for allowance.
- Keep tabs on expenses. Next, determine how you will track your expenses. Will you use a free online tool, such as Budget Tracker, a spreadsheet, a notebook? Keep everything in one centralized location. The most important thing is to do what works for you. Spreadsheets can be overwhelming for some, and you may not have access to a computer daily, so use the method of tracking that works for you, your lifestyle and your personality. Me, I’m an online software user.
- Develop a picture. The goal here is not to add more stress to your life, but to develop a comprehensive picture of where your money goes.
Take a hard look at your last year’s expenses
Carefully examine your check book register, credit card statements, and bills from last year. Be sure to include both your expenses and your ex’s (if you were still married last year and sharing expenses) to get a full picture of your prior household budget so nothing is missed. There are 4 types of expenses that you will see occur: Fixed, Variable, Periodic and Discretionary.
- Fixed Expenses. These expenses occur every month and the dollar amount usually remains the same. Examples include: rent/mortgage, childcare, insurance premiums and car payments.
- Variable Expenses. These expenses also occur on a monthly basis but the dollar amount may vary from month to month. Examples include: food, utilities, gas, household expenses, and credit card payments.
- Periodic Expenses. These are expenses that occur on a regular, but not monthly basis. Examples include car insurance, medical expenses, home/auto maintenance, membership/dues and life insurance premiums.
- Discretionary Expenses. These expenses can be defined as purchases that fall outside one’s needs or things you can live without. Examples include: vacations, gifts, personal care, subscriptions and entertainment.
To develop a monthly figure for each expense you may need to take an annual expense and divide by 12, or a quarterly expense and divide by 3. These figures will give you an average amount spent so you can include them in your monthly budget. A pitfall many of us fall into is forgetting to add periodic and discretionary expenses causing us to go “over” budget.
Categorize expenses
Here are just a few categories you may include to help you get started. For some categories you may need to breakout into sub categories.
For example:
- Food: lunch, groceries, dining out, school lunches, treats.
- Housing: rent, mortgage
- Utilities: gas, electric, phone, water, trash
- Travel: gas, tolls, parking
- Entertainment: adult, kids
Consider giving yourself an allowance
I have been doing this for years and for me it’s empowering. Set aside a line item on your budget entitled “allowance”. This gives you cash in your wallet to use as you wish and doesn’t need to be accounted for in any of your other budget categories.
Sometimes I get through the week with money left over from my allowance; I dutifully place it into my savings account. You may opt to save up your allowance for a big purchase that’s not in the budget. An allowance gives you the power to use the money as you see fit without feeling guilty.
Cut, cut, cut
Many of you will find after a close inspection of your expenditures there are things you can live without; start removing them from your budget. One of the easiest places to cut from, are your discretionary expenses, so I recommend starting there. Keep going until your expenses are less than or equal to your income, to develop a balanced budget.
If you are one of the lucky ones you may find a sum of money you can contribute to additional savings for your future, or just because.
Stick to it
One of the biggest problems I see with people’s budgets is the ability to stick with it. It’s not always fun to have to account for every dollar or expense, but in doing so you are controlling one aspect of your life and ultimately making things easier on yourself.
If you have debt, sticking to a budget can help you get out from underneath it more quickly and help you to reach your goal of financial independence.
Single income families struggle with the same issues as dual income families, but the difference is we are doing it alone. Having a budget in place helps me rest easier at night and know at a moments glance where I stand, financially speaking.
Suzanne is a certified credit counselor working in our Ask the Expert forums as a coach and a Social Media Specialist for CareOne. Suzanne writes for our Divorce, Debt and Finances and A Straight Talk on Debt blogs. Follow Suzanne on Twitter where she shares the latest debt industry news and tips to keep your finances in check with her ADivorcedMom and AskCareOne accounts.
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About Lee Brochstein
