Thursday, April 15, 2010

Budgets: Part III

Congrats! You've already made it through Budgets: Parts I & II. Before we forge ahead into our third and final installment, let's take a quick look back at all we've accomplished so far. In Budgets: Part I, we explored why budgets are important tools for reaching our financial goals, and made a master list of our expenses (where our money goes) as they stand, right now. In Budgets: Part II we organized our list of expenses into three categories: our regular expenses (they're due on a consistent basis, and they're unlikely to start shrinking in the next month or two as we're typically contractually obliged to them, eg. your rent), our priority expenses (they are only a couple of these - two at most - but we're not ready to start spending less on them at this time because they make us feel really good eg. your weekly trip to the cinema), and shrinking expenses (that's everything that's left over folks, and this is where we're going to start paring down the numbers eg. your twice weekly trips to Target for nothing in particular, your latte a day habit). We also started using an Excel-based budget to play with the numbers, and to see how much more we could sock away or pay towards debt if we really focused on thinning out our shrinking expenses.

Today we're going to talk about how to solidify and stick to our personal budget. After playing with your own budget for a while you probably settled upon something livable that lets you save much more than you are now. Don't get too stressed out thinking about what happens when your living situation changes or when unexpected expenses arise. There are three things in particular to make sure your final budget offers you:

1. Your budget should enable you to put enough money into your savings (or towards your debt) to make consistent and considerable strides toward your financial goals. In my case, I want to add $6,000 to my savings account in the next 6 months. You can bet my monthly budget includes a regular $1,000 deposit into my savings account.

2. Your budget should leave you enough wiggle room that you're not completely strapped for cash right before your next pay check. This means don't budget out every dollar and cent you make in a pay period. I have made this mistake myself, and it really helps to make sure you have a couple hundred dollar cushion in your checking account. This will give you enough cash on hand should an emergency arise and you don't have enough time to move funds over from your savings.

3. Your budget should leave you feeling empowered. You want to look at your budget and get the sense that, “Yeah, I may need to make some changes but this is doable and it is SO going to pay off”! When I examine my budget, I feel comfortable knowing all of my regular expenses are factored in, excited knowing I can still enjoy my spending priorities (a few new pieces of clothing and some coconut ice cream), and amazed at how by cutting down in other areas of my life I can save some serious dough.

Don’t even think about putting your budget into action until you’ve got all 3 down pat. Your attempts will be futile and painful, like sticking to an Akins diet in Italy (and really, why in the world would you do an Akins diet anywhere?). Once you’ve organized a monthly budget that works for you it’s time to put it into action… not tomorrow, but right now.

I find the easiest way to stick to my own budget is to have it readily available and to update it continuously throughout the month as I make purchases and payments. I opt for an Excel document to keep my budget in, and upload it to Google Documents. That way, no matter where I am or what computer I’m using, I can jump online and quickly enter in how much I just spent at the gas pump or for that last minute lunch date. If you haven’t tracked your spending like this before, really recording each and every item, it’s a wonderful habit to get into. You’ll be surprised just how easy it is to stay on track with your budget when it’s truly tailored to your needs and you actively track your progress each and every day.

There you have it! A solid foundation for reaching your financial destination - your own personal budget.

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