March 1, 2011

Setting a Budget

Food inflation © Tetra Images/Corbis When I am giving coupon talks and bring up the word budget, I often hear a little grumble from the audience.  Many people don’t like to budget because they think of it as a chore.  Yet, budgeting is one of the best steps you can take to save your family money.

I can’t tell you how much our family budget has helped us.  Yes, it is a bit of a drag to put everything on paper and to be disciplined with your spending, but it is much better than the alternative—debt.  We know how much money is coming in and going out and how much we spend in each category annually.  After having recorded our family budget for over a year now, we are able to see trends in our spending.  We are better able to anticipate what months the utility bills will be higher, to know when we buy more gifts, and to be reminded of when we have certain annual bills and expenses due.  It has also helped our marriage.  We communicate about money, goals, and needs and wants.  We work together on our spending and savings.  We are teaching our daughter about budgeting, earning money, tithing and saving.  In short, a budget is a must.

So how do you start budgeting?

Work with your family—the first step is to sit down with your spouse or partner and set a budget before the beginning of the month.  Make a list of all of the money that you have coming into your bank account.  Then make a list of all of the expenditures you have.  What bills do you regularly pay?  What expenses do you need to plan for this month?  Make sure you put the budget agreement down on paper or use a computer spreadsheet or program to help you budget.  If you just try to budget “in your head”, you’ll be setting yourself up for failure. 

Then do something that no politician has ever figured out how to do.  Balance your budget.  Make sure that the expenses don’t exceed the income.  If you have any wiggle room on your budget, use it to pay down your debt in what Dave Ramsey calls the Debt Snowball.  Make a list of your debts from highest to lowest amounts.  Start attacking the smaller debts.  Each time you pay one off, use the money you were spending on that monthly payment to pay down the next bill.  This sounds counter-intuitive, but it builds your momentum.  If you are interested in more information on that, I recommend you read any of Dave’s books.

Keep a record month to month and year to year.  Because we’ve kept our budget for so long, we are able to track trends in our spending.  Reviewing our budget helps us to anticipate when we have larger utility bills, and we are reminded when annual bills are due.  We are able to look back on our progress and have a sense of pride in how much better we are budgeting now as compared to months ago.

What is included in “groceries”?  One big area where families can make a dent in their budget is in the grocery category.  I’ve heard of people going from spending around $1000 per month to less than half that.  Why?  Because they all the sudden were paying attention to their spending!  Normally we would budget $350 each month for groceries.  This includes all groceries, paper products, cleaning supplies, toiletries, medicines/herbals, and hygiene items (razors, deodorant, etc).   When we started budgeting I would try to put some of those items under a household expense budget, but that became tedious.  Because I was buying many of these products as the same time as I was buying other traditional grocery items, it was easier to lump them all together.  What about your family?  What foods and products fall in the “grocery” category and how much do you budget per month?  Knowing the answer to that question will help you to stay on track.

Don’t just track what you spent at the grocery.  Want to make budgeting more fun?  Start tracking your savings!  Most store receipts now include a line that says something like “store savings” or “savings with coupons”.  Make note of that number.  I love seeing that I spent $5 but I saved over $30! 

Develop a “needs list” to help foresee expenses.  I talk a lot about this on the blog and my coupon talks.  When you have a list of products you know you will need for the month, it will help you shop the coupons and sales. If you know you are about to run out of toilet paper and need to buy it before the month is up, you can watch for a coupon match up and sale. In contrast, if you didn’t have a plan you might pay full price or a marked up price on the same toilet paper because you bought it when you were about to run out.

Set aside some money for stockpiling.  If you have any wiggle room in your grocery budget, set aside a few dollars that will allow you to build your pantry.  Buy extras of products that you know you will use in the future when they are free or super cheap.  As you stock up on those items, you’ll start to see your grocery budget shrink.  A good example of this was my recent February Eat from the Pantry Challenge.  We drastically reduced our grocery budget by eating many of the foods we had stored in the pantry, fridge, and freezer. 

Build momentum—it might be slow progress at first.  When I look back on our first month’s budget, I remember how stressful it was.  I felt like a failure every time I realized that I had forgotten another expense or bill.  It takes a few months to get the hang of budgeting.  As you start to see progress, you’ll get in a rhythm of budgeting and it will become much easier.

1 comment:

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