Budgeting has never been more important, given today’s economic climate. Whether you’re a new graduate living on your own for the first time, or a family of four, there are ways you can gain control over your finances.
First, know your income. Whether you get paid weekly or monthly, you need to know how much money you have to live on. If your income fluctuates according to how much you work, estimate the amount you expect to earn each paycheck. The calendar method is one of the easiest ways to budget, as you can see a month’s picture at a time. Using a large monthly wall calendar, write in blue or black ink the amount of income you expect on the day it will be paid. If you are paid on the first of the month, write that amount on the first. If you are paid every Friday, write that amount on each Friday, and so on.
Next, gather your bills. Hopefully, you won’t have several credit card bills, but if you do, make sure they are all accounted for. Don’t forget recurring bills-car payment, rent or mortgage, utilities, cable, and any auto drafts. Write the amount rounded to the nearest dollar in red ink on the date that it is due. When you’ve done this for every bill, your calendar will probably have lots of red ink on it. Total each week’s expected amount to get a weekly total. This gives you the big picture of your finances. If you get paid weekly and your income for one week isn’t enough to cover your expected bills, this method will alert you that you will need to dip into your savings (you do have an emergency fund, don’t you?) to pay that week’s expenses, or else have enough left over from the week before to cover the difference.
With job security not guaranteed, one of the best ways to insulate yourself against financial disaster is to simply live below your means. If you can afford $1200 a month for rent or mortgage, find a home for $900 or $1000 a month. Your budget says you can afford a monthly car payment of $500, you buy a car with a monthly payment of $400. Too many people get themselves in trouble by living at the max of their income, not forseeing an unexpected layoff or cutback in hours. Consistently living below your means, frugal spending, and careful budgeting will allow you to have economic peace of mind and less stress caused by financial issues.
Trimming even $100 a month from your expenditures can make a big difference in your economic picture. That’s only $25 a week, easily obtainable. What makes it so hard for Americans to save is that we think everything is a necessity. Expanded premium cable TV? Oh, we can’t live without that. Cell phone packages with unlimited texting? Another must-have. Remember, our grandparents lived without cable and cell phones, and did just fine. Scale back on the cable and cell packages and you’ll be surprised how much you can save each month.
Keep a notebook of every penny you spend for a month. Whether it’s 75 cents in the vending machine at work every day, or a drive-thru breakfast every morning, you’ll soon see how money is sucked out of your wallet. If you count on the vending machine at work for your afternoon candy bar, you can save several dollars a month by buying packs of candy bars at the grocery store, or whatever your snack of choice is. And as much as we love Starbucks, it can be a very expensive habit. Known as the latte factor, if you spend $5 a day on a latte, over time had you been investing that $5 daily in savings or a CD, you could have thousands of dollars assuming a daily habit for 30 years while you are working. Amazing, isn’t it?
My grandmother was right. She had a saying that dates back to the Great Depression: There’s more in managing than making.