Budgeting 101

Oh, there's that word so many know and so few do....budget.

When I say the word "budget" to people, many think of this

People feel they will be controlled, have no money for fun, be under someone's thumb etc... you get the idea. I also hear "I have nothing to budget with." This time of year, people are spending like Christmas will end and never come again.,,,, um,,,, not going to happen. We know Christmas comes every year as well as birthdays, car repairs, and bad colds. Why do we decide to ignore this until it happens? When you think about it, are you in control of your money if you ignore these things? Now if you don't celebrate Christmas or birthdays, don't have a car and never get sick...then, well, OK, but I bet there are still things that pop up which can upset the apple cart.

So here are some of my tips that I hope will help you on your road to controlling your money instead of the other way around.

1.  Don't think of all the negative words when it comes to budgeting-words are powerful and they can hurt, hinder or they can make you grow and soar! All you want to do is organize your money so it works for you. If you can pay your bills on time, know where your money is going and can save then you are on the right road.

2.  Why do people say "I make $60,000 a year. I have a mortgage payment of $1,100 per month, and I spend $2.00 at Tim Horton's (coffee shop all over Canada which people would cry for years if they ever closed up)- this tells me next to nothing..why? First off do we see $60,000? Ok I don't, but let's pretend and realize, we don't see this because the tax man takes a huge portion. People give figures that are monthly, daily or yearly and this is not consistent. We need consistency so mark down your take home pay (net) for the month from all sources and then mark down all your expenses on a monthly basis even if they do not come every month. Don't forget your coffee money, bank fees, pet needs, medicine, gifts, clothing...

3. You may, after composing this initial budget, find that you are in the hole each month or, possibly, have quite a bit extra left over and wonder how on earth you are functioning. Well, you are but you are actually unsure how much you are spending on certain items. We have a pretty good knowledge of our rent/ mortgage payments, hydro, heat, insurances but I bet you are guessing with groceries, coffee's out and gifts. What to do? You must keep track! The best is to keep track of every expense but, like New Year's resolutions, it soon fades. Many people keep receipts and then at the end of the month, they spend 2 hours sorting through the receipts resulting in this...

I say, take 3 expenses that you are unsure about, take 3 envelopes, label them (ie. groceries, lunches/coffees out, entertainment) and every time you spend money on that expense, get the receipt and place it in the envelope. At the end of the month, since it is already sorted, all you have to do is add up the receipts and write the amount you spent on the envelope. Do this for 3 months so you have a good average. You can see, after 3 months, how much you under-estimated or over-estimated and determine whether you need to cut back or have better knowledge of how much you need  for that expense.

4. Many people will take one of their paycheques and use that for rent/mortgage and the other paycheque would be for food, insurance etc... This style may not work the best especially if one paycheque just covers rent/mortgage. The paycheque planner works better. Once you have worked out your expenses on a monthly basis, divide those expenses by how often you are paid. for example, if your rent is $800 per month and you are paid bi-weekly, set aside $400 per pay for your rent. If your water works out to be $90 per month, $45 is set aside per pay to cover water and so on. This levels off all your expenses and makes it easier to buy food and cover gas for the car on a regular basis.

5. Think about having more than 1 bank account provided your bank does not charge you extra. This helps organize your funds even more. When you review your expenses, you will see certain expenses are "musts"-if you don't pay them you will be in trouble (All housing expenses, insurances, debt payments, bank fees). You can have a savings account for gifts, clothing, car repairs and house repairs and include any goals. The third account can be your main account for all "cash" expenses from groceries and gas for the vehicle to entertainment, child needs, pet needs etc... I have 3 accounts and, each time I am paid, I place "X" amount into my "Must" account, "X" amount goes into Savings and the remainder stays in my regular account for cash items. When a bill comes in, I simply pay it from the "must" account. When I look at my regular account I know that is what I have left to use for my cash expenses. I have one regular bank fee that covers all three so I am not charged extra. Again, make sure the bank does not charge you extra.

6. Make your savings account inconvenient. We live in the land of convenience making it so easy to spend. If someone has a hard time saving the best is to make that account hard to get to. You can deposit the money in but you have to stand in line to get the money out. If you are married, you can have an account where both of you must go in and sign not just one or the other. You will find this helps with building your money up.

7. Regarding your cash expenses, some people have told me if they have cash, they spend it, debit keeps them more in control, they document it and they don't spend as much, while others have said debit is "out of sight, out of mind." they don't see the money leaving so, in this case, cash is better because they do not want to spend as much. You understand both but you know one works better for you (not easier) than the other. You need to take the route that works better for you.

8. Set up "roadblocks" as I call them. Impulse buying often upsets a budget. We are all guilty of buying something we shouldn't have so how does one limit the amount of spending? Make things inconvenient! If you go to Wal-Mart to buy something you need and Wal-Mart has the best price, I am certain you already know how much it will cost. Take out the $20 in cash, go to the store, leave your debit and credit card in the trunk of the car. When you walk into the store, you may see other things you would like to buy but you can only get the item you actually need.  By the time you walk to get the item, stand in line to buy it and walk to your car, ten to one, you will not want to go back into the store for the items you saw...your curbed your impulse! If it is a Wednesday, you have food at home, gas is in the car...leave your debit card at home. It may feel weird at first but it prevents any impulse buying.

9. One only needs 1 credit card but often people have, on average 6 cards including an overdraft, loan and credit line. If you are up to date with everything and you are doing well, you can see about consolidating your debt with the bank but please, get rid of your 21% overdraft and the credit cards with the high interest rates. If you have a bank card at 19% with a balance of $3,000 on it, it can take you 24 years to pay it off. If you have a retail card, like Home Depot, it can take you 36 years because their interest is 28.8%. We only need 1 credit card. If you don't want to use your card but you are tempted to, literally place it in a bowl of water and freeze it! You don't have ready access to it plus, if you try to microwave it, the magnetic strip will blow your microwave.

10. Any budget or change in one's money style takes time and persistence. Nothing works over night. Be patient, follow these tips and know thyself. Part of budgeting is realizing your money style and working with the strengths and acknowledging your weaknesses.

I hope some of these tips help. Yes this is lengthy but I have a passion for budgeting and I feel if you budget then you feel more in control and have a sense of freedom instead of straitjacket city!