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WRAL SmartShopper

New blog series on frugal living: Week 1 is Budgeting 101!

Posted February 6, 2014
Updated March 3, 2014

Budgeting

Now that we are well into the New Year, this is the perfect time to take a thorough look at your finances, debt load, grocery saving strategies and general frugal living techniques. As we all know, the economy is still struggling and the more you can do to protect the financial stability of your family, the better off you will be when money is tight.

"Budgeting 101" is the first article in a 10-week series starting this week including putting your financial house in order, cutting grocery bills in half and basic frugal living. Come back each Thursday for a new article or blog video (or both on some weeks), and by the end of the ten weeks, you’ll be saving money in just about every aspect of your life! For many of you reading this, money has been tight for a long time. My hope is that the information we are going to share in the next 10 weeks will help you live more comfortably within your means.

Budgeting 101

Because of the financial difficulties we have experienced as a nation for the last many years, more and more people are discovering what it means to be frugal. For those economic pundits encouraging people to go deeper into debt and spend, spend, spend in order to turn the economy around – shame on you! That’s what got us into this mess in the first place – irresponsible financial behaviors. Now is not the time to spend as if money grows on trees. It is time to take stock of your finances and determine a responsible course for the New Year and beyond. The very best tool to help you chart that course is a budget. If you don’t have one, you need one– now. It is like a best friend that wants to help you become debt free and achieve financial freedom. Listen to what it “says,” and you will know what you need to do in order to live comfortably within your means. It’s one powerful piece of paper!

A basic budget shows you how much money is coming in, how it’s being spent and how much you have left over at the end of the month (and hopefully you have some left over!). Developing a budget is serious business, and a workable, realistic budget is the key to helping you keep your financial resolutions. Be prepared to sit down with your financial records, a pencil, a calculator, some scrap paper and plenty of chocolate (trust me, you’ll need it). Feel free to work on part of the budget one evening and finish the next night. Creating a budget takes a few hours, but doesn’t have to happen in one long marathon session.

To develop your household budget, start by printing the Budget Worksheet found by clicking the link above.

1. Look over the worksheet categories and amend them to fit your income and expenses. Add and delete categories as they apply to your specific earnings and spending habits.

2. Calculate your average monthly income including net employment income, spouse’s income and all other sources of income.

3. Use your checkbook, bills and receipts for the last two to three months to average how much you are actually spending per month on the budget categories listed.

4. For expenses that occur more or less often than monthly, convert the annual amount to a monthly figure when calculating the monthly budget amount. For instance, if your homeowner’s insurance is paid yearly, divide that annual cost by 12 to obtain the monthly amount.

5. Total the income category and total the expenses category.

6. Subtract the total expenses from the total income to calculate your net income (Income – Expenses = Net Income)

7. If your Net Income is a positive number, good for you! This means that you have money left over at the end of the month after your expenses have been paid. Apply any extra money to paying off debt and increasing your savings. Remember that extra money left in a checking account tends to be spent.

8. If your Net Income is a negative number, then your expenses equal more than your income and it is time to make some immediate adjustments in your spending. You are living beyond your means and it is time to apply some frugal living techniques right away. In the coming weeks, we will talk about specific ways to help cut your grocery, entertainment and household expenses.

9. Review and update your budget quarterly (or at least every 6 months) to see if any changes need to be made and to ensure that you are staying on track. I know that sounds like a lot of updating, but you can see at a quick glance if anything has changed in the categories and make changes as needed. Your budget will let you know right away if you are spending more than you should. “Listen” to it carefully and heed its warning if you are spending too much.

10. Once you have completed your budget, it is time to record your daily expenditures in order to determine where you can cut expenses and control total spending. Track your expenses, every day, for everything you spend in a month (minimum of 2 weeks). I know this sounds like an incredibly tedious project (and it is), but it works – I promise. At the end of the month, you will have a crystal clear picture of where your money REALLY goes and what non-essential expenses you can cut immediately to get to a positive net income.

You have now made it through the eye-opening world of budgeting and should have a much better idea of where you stand financially. Continue to update your budget, especially as your expenses drop and you live more frugally. Here’s to a fabulous, frugal and debt-free year! Next week, we will be chatting about getting out of debt.

Do you have a budget already? If so, how often do you review it?

As I always say, it’s your money – spend it wisely!


 

22 Comments

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  • beas Feb 10, 2014

    Thanks, Faye. I'm looking forward to trying this hoping it will help. One question about credit card payments. I'm trying not to use credit cards but if I get in a bind, sometimes I do. If I purchase computer equipment with my Best Buy card do I put it on the budget worksheet under computer expense or credit card payment? Same question with clothing--clothing expense or credit card?

  • lucasd06 Feb 10, 2014

    couponbec777:

    $0! Get an antenna to pick up TV stations for free "over the air." Completely legal. We're not big TV watchers but we get the main channels for primetime and news; CBS, NBC, ABC, FOX50, and even METV :-) go to www.antennaweb.org to determine what channels you would pick up in your area. Bundle this with a subscription to Netflix for $8/mo, and you've saved yourself $60+ per month!

  • couponbec777 Feb 9, 2014

    i would like to get a survey of how much folks are spending on their cable bill?

  • Faye Prosser -WRAL Smart Shopper Feb 6, 2014

    lucasd06 - thanks for the additional info on YNAB! Sounds like a great option for tracking every penny.

  • lucasd06 Feb 6, 2014

    JCS281 mentioned it below, but the software developed at You Need A Budget (YNAB for short) is EXCELLENT. My wife have been using it and it's so easy! She uses her Galaxy smartphone to enter a transaction as she's walking out of the store, and I use my iPod touch to enter my transactions. As soon as I have Wifi, our transactions sync. The idea behind YNAB is to assign every dollar in your account a specific purpose. It forces you to live within your budget in foresight rather than tracking how bad you've already been with your money in hindsight. There is a 34 day free trial and then $60 lifetime subscription. Because it is an app on your smartphone, you're more likely to stick with it than pencil and paper!

  • Faye Prosser -WRAL Smart Shopper Feb 6, 2014

    Great advice jdouglas - thank you. :-)

  • jdouglas13 Feb 6, 2014

    Thanks, Faye. We try.

    Seriously, a first suggestion would be to call every service provider you have and ask if there is anything they can do to reduce their prices. Possible services are cable, phone, cell phone, home and car insurance. I'd even try electric, gas, water, and garbage. Go in with the mindset that everything is negotiable. I saved quite a bit of $$ last year on cable, home, and car insurance. I saved on garbage "back door" pickup a few years ago when I let them know we are both disabled. The absolute worst thing anyone can say is no. Also, it has paid off for us to join AARP and AAA for all kinds of discounts including car repair, eyeglasses, travel, Walgreens purchases (AARP), and more.

  • Faye Prosser -WRAL Smart Shopper Feb 6, 2014

    munecachina - that is such an interesting way to compartmentalize your expenses. Sounds like it works for you. Thanks for sharing!

    Jdouglas - I know you are both very very frugal (well, except for your Parmesan problem - lol!) so please add any other suggestions you have to any of the posts.

  • Jesscoupon Feb 6, 2014

    Forgot to add-Thank you Faye for this new series and everything you do for frugal living!!

  • Jesscoupon Feb 6, 2014

    I started keeping a spreadsheet a few years back and it has made a huge difference. I update it every Saturday morning to make sure we are on track. Something I do to help manage funds is an idea I got years ago from a friend. I have 3 checking accounts-1 for payroll deposits and fixed payments, 1 for groceries, gas, etc, and the last one for misc expenses.

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