The first step to controlling and managing debt is to understand where your money is being spent, and where you can cut costs. This means budgeting. Getting started on a budget, and staying on budget, doesn't have to be hard if you know the top ten things to keep in mind when creating your budget.
1.Budgets Are Evil, But a Necessary One.Planning a budget, and sticking to it, is really the only way to get a handle on what you're spending your money on, and making sure that you are spending your money in the manner you want it spent.
2.There are Three Main Steps to Creating a Budget.
- Identify how you're spending your money now.
- Set future spending goals that take into account your objectives (save for a house or retirement, pay down debt, etc.)
- Track your future spending to ensure you'ree meeting your goals.
3. Save Time, Use Software.The built-in budgeting tools of personal finance software such as Quicken or Microsoft Money make it easy to track your expenses and create your budget for you.
4. Don't Pinch Pennies.Saving is good. Being aware of how you are spending your money is good. Driving yourself crazy over details, or driving across town because gas is $.01 cheaper a gallon, is not good. Concentrate on a few areas where spending can, and should, be cut and don't micromanage the other areas of your spending.
5. Use a Notebook to Write Down Cash Purchases.Have you ever gone to the ATM on Monday morning, and by Tuesday lunchtime you're out of cash but have no idea where it went? Get a small notebook (I love the dollar section at Target) and start writing down all your cash purchases. This will help you keep track of where your cash is going so you can see where, and if, you need to cut back.
6. Champagne Taste on a Beer Salary.My mother always used to tell me I had champagne taste on a beer salary. This is an old fashioned way of saying don't spend more than you make. Seems simple, right? If it were that easy, you wouldn't need to budget. If you're spending more than you take in, it's time to make some serious cuts.
7.Ask Yourself if You Really Need It.If you are spending more than you're earning, then some of your spending is going for "wants" not "need" . You need to ask yourself each time you're about to purchase something "Do I need it, or do I just want it?" I may think I need 5 vacuum cleaners (really, they each do a different thing!), but in reality, I can get along just fine with one.
8. Trick Yourself Into Saving. Try to spend no more than 90% of your income so you can save the other 10% for big ticket items or emergencies. One easy way to do this if you have direct deposit is to have 10% of your salary automatically deposited into a savings account and the rest to your household account. Or, you can set up an automatic transfer from your household account to a savings accounts on a monthly or bi-weekly basis. ING offers great interest rates on their orange savings accounts and short term CD's.
9.Don't Count on Winning the Lottery.Many Americans include "winning the lottery" in their savings plan. While it could happen, the odds are against you. When you're projecting the amount of money you need to live on, don't include money you're not positive you'll receive - such as overtime pay, year end bonuses, tax refunds and lottery proceeds.
10. Inflation Works Both Ways.As your income rises, your spending on non-necessities shouldn't rise at the same rate. Be sure that you're putting enough aside to stay ahead of inflation before you start shopping for big screen TVs. Consider increasing your 401k or IRA contribution by the same percentage as your annual salary increase until you max out your contribution rate. Your income will stay approximately the same, but you'll be contributing ever larger amounts towards your retirement. |
