How much does $14.99 per month really cost you? Ok, it’s an easy lead-in to our topic. We can all calculate that it is $179.88 per year. This is part of the appeal of marketers, and a main culprit of wrecked budgets. If a marketer can successfully sell you on the fact that their item or service is only x-amount per month, they’ve won! Rarely do we look at it from an annual total perspective and how it will really hit our budget. Mostly because it seems like a small amount, we think we have that amount to spend, but we’ve forgotten all of the other $14.99 per month items we are already spending on. That leads to this month’s topic – budgeting!
I’ve often mentioned tips in other posts about keeping an eye on your budget, but I haven’t written lately about how to actually budget! It’s a topic many like to avoid, and folks tend to think it means tracking every cent and trying to balance at the end of the month. You can get that detailed, but you don’t need to. Since I’ve been getting requests lately, I think this week is a good time to revisit our friend the budget.
My husband is retired as of this month, so for us, budget has been a topic for a long time now. At its basic form, it’s making sure that you do not spend more money than what’s coming in each month. Sounds simple. That’s where many get into trouble. We tend to oversimplify, assume, and guesstimate our spending. Here are few methods for you to consider for your budgeting.
Zero-based Budget – Many like this budget approach. It seems simple. You calculate all income for the month, and then subtract all expenses for the month to reach $0 leftover dollars. What if your income exceeds your bills? Well, that’s great! In this case you up the amount of money going to debt reduction, savings, or investments. Drawbacks to this method is that it requires time, accuracy, and can be overly consuming for some. This method will reveal if you are overspending. If your sums come up negative, you need to examine money going out each month.
You may need to tweak your initial percentages when working toward the 50-30-20 budget.
50/30/20 Budget – This is considered the gold standard by many. This budget method is less detailed than the zero-based approach and can provide some flexibility if your monthly income fluctuates. At heart, you spend 50% on necessary (non-discretionary) expenses, 30% on discretionary expenses, and 20% on savings and debt. This method is easier than tracking each expense and allocating it. Basically, you give yourself three pots of money to work from each month. It’s an easier method than tracking every expense. However, if you have a lot of debt, this approach can be more of a challenge. For example, it may take you a while to get to 20% of income for this category.
Envelope Budget – You can use this old, time-tested approach but it does take some preparation. It’s exactly what it says it is. You allocate a specific amount of money for each expense category and that amount goes into an envelope (physical, or digital). For example, say you allocate $500 per month for groceries. In the old days, you would literally put $500 in cash with you in an envelope. You can still do this, and some do. It’s a bit of a hassle and you have to handle a lot of cash. If you can, try to use a modern digital version of this method, it’s a bit easier to manage. The downside to this approach is the hassle of physical envelopes and cash if you do it the old way. I had a friend who used this very approach and it worked great for her!
There are other budget methods out there. Google a few examples to see what works for you. You may need to try a few methods before you find the budget that works for you. Don’t give up. Learning to budget, and live within a budget, can take time. Start by just being more aware of your expenses and spending habits. Try to spend with intention and put your money toward vendors and services that resonate with you. If you get off-track, give yourself a break and then go at it again.
You will need to start by tracking your expenses. This step alone can take two-to-three months to get an accurate snapshot of household spending. Getting this right from the beginning is key. If you don’t like the word budget, use spending plan. If that is also a negative word for you, call your income and expenses a financial map. Use whatever term works for you. Don’t forget, there are lots of apps, websites, and other technology that can help you make this easier. If you like tech, put it to work for you. You can also start using this Excel spreadsheet. PLEASE MAKE A COPY PRIOR TO ENTERING DATA. Customize it as you need by renaming the categories. It’s yours to use.
As an independent CERTIFIED FINANCIAL PLANNER™, I can help you budget to meet your goals. Contact me and let’s get started on a budget, savings, investing, or retirement plan. #talktometuesday #education #Hireaplanner #stressfree #IRA #SEP #SIMPLE #Roth #savings #retirement #CFPPro #whatsMYnumber #budget #spendingmap