Part 3: How to Follow and Stay on Budget

 

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Budget Part 3

 

Prior articles discussed 1.) Why you should have a budget  2.) What is a budget and how to get started. This article discusses how to follow a budget each month.

Most people easily grasp the first two articles, but few people actually follow or stay on budget. For people who really need a budget but ultimately fail to stay on one for the long-term, this article may be helpful.

Contract with Yourself (and Spouse). Tracking spending and staying within spending limits is very hard for many people; therefore, it helps to have a contract with yourself. If you are married, this agreement should include your spouse. If you work together, you will accomplish more than you could on your own.

  1. I will start a budget, and I will pay attention to it weekly and monthly.
  2. I will not spend more money than I make.
  3. I will be in financial partnership with my spouse with no secrets between us.
  4. I will not borrow to purchase items that depreciate in value.
  5. I will not let my emotions make me purchase anything, including gifts.
  6. I will not buy something that costs more than $50 without consulting my spouse, our budget and our financial plan.
  7. I will not purchase something that exceeds my budgeted amount unless it is out of my control (i.e. utilities, emergency medical expenses, car repairs).
  8. I will not purchase anything that I don’t really need, no matter how good the sale is.
  9. I will not purchase something to keep up with the Joneses.
  10. I will not purchase high maintenance items (i.e. pet, hobby) if I can’t afford the expenses that come with them.
  11. I will not apply for any new credit cards unless they have a lower interest rate than my current card.
  12. I will pay off all credit cards monthly (I will work toward paying accrued balances off, and I will never carry a balance again.
  13. I will not spend money on fun things unless I have paid my monthly bills.
  14. My spouse and I will both be the “fun police”, helping each other determine whether an expense is justified.
  15. I will include children in the budgeting exercise so that they learn restraint from our example.

Cash Flow Management Tips & Money Savings Tips. In addition to having good budgetary habits, it also helps to take advantage of money-saving measures. The following are a few of the things you can do to help you save thousands of dollars per year.

  1. Tax Advisers:  Use tax advisers to avoid overpaying taxes.
  2. Investments:  Utilize investments that have low to no commissions, fees and expenses.
  3. Borrowing:  Shop around for the lowest interest rates.
  4. Insurance:  Consult your eFinPLAN financial plan to determine the insurance you need, and meet with a professional insurance adviser to help you find the lowest prices possible. (eFinPLAN is not an insurance provider.)
  5. Living Smaller:  Live a lifestyle one to two notches below your income bracket. Smaller homes and cars, and fewer belongings require less money to maintain and insure.
  6. Low Price Travel: Camping or lower cost destinations (or off-peak weeks) often are more enjoyable than expensive resorts and tourist destinations.
  7. Transportation:  Transportation consumes a large percentage of family income; see the Transportation and Commuting article in the eFinPLAN blog.
  8. Food:  Pack your lunch, eat out less often and at less expensive establishments, avoid expensive beverages when you eat out (such as coffee), and shop at the least expensive grocery stores.
  9. Identify Wants versus Needs:  Because of quick credit extended to the last generations, people have learned to live above their means on a regular basis; therefore, many of us need to learn to identify what wants and needs really are. For example, having a manicure or buying season passes to your favorite sports franchise may be difficult to justify unless you can afford it.

Tips for Organizing Your Budget                                                                           

  1. Use technology or spreadsheets:  Obtain software (or use spreadsheets) that will help you pay bills and make and monitor a budget.
  2. Devote time to it:  Keep track of all expenses and enter them into your software program or monthly spreadsheets each week. Use services like Mint.com (free but they sell you {your information}, or Ynab.com, one-time small cost for PC and smart phones.
  3. Save all receipts, bills, household documents, and tax documents: Organize these items by category into an accordion file or drawer: e.g., auto, bank, business, credit cards, dental, medical, grocery, income, insurance, mortgage, utilities, general receipts, school information, and taxes.
  4. Balance your checkbook:  It is amazing how few people balance their checkbooks monthly. Budgeting software makes reconciling simple, but you can read the back of your statement or make an appointment with your banker if you need to learn to do this skill manually.
  5. Tax Time:  If you use budgeting software, you can run a tax summary report before you work on your taxes. If not, and if you itemize your taxes (Sched.A), you must total the appropriate columns in your spreadsheets, e.g., Medical expenses (Your accountant may provide you with an organizer to help you get ready for tax time).
  6. Set Expenses:  Remember to place quarterly and yearly expenses on the appropriate month in your budget so that you do not overspend. For example, annual insurance payments, quarterly tax estimated payments, annual homeowners association dues, etc.
  7. Debit Cards for couples:  Debit cards can make monitoring your spending very difficult, especially if both you and your spouse use one for the same checking account. Each spouse should regularly enter receipts into the budget spreadsheets or software and communicate any unexpected or extra expenses.
  8. Debit Cards for singles:  Make sure that you are entering each receipt into the budget weekly and/or enter each amount into your checkbook as you make purchases. Be careful of overspending with this convenience.
  9. Education for your children:  Remember to include annual expenses in your budget for ‘pay to play’ fees, sports or school uniforms, school books and lab fees, pictures, etc. We usually budget around $600 in August to pay the public school fees for two children. Budgeting becomes even more crucial when a child heads off to college.

Other Practical Tips.  In addition to having good budgetary habits, it also helps to take advantage of money-saving measures. The following are a few of the things you can do to help you save thousands of dollars.

  • Break Habits:  Smoking and excessive eating of pre-prepared and fast foods costs thousands of dollars per year.
  • Monitor Emotions:  Shopping provides only a temporary relief from depression or stress. The real stress begins when the bills arrive.
  • Support Groups: Support groups for individuals with compulsive behaviors may be offered at a low cost (or free) by community centers, the YMCA, or churches.
  • Library: Educational: Obtain books from the library from their large inventory of resources about budgeting, financial planning and spending less.
  • Library & Entertainment:  Obtain good books and DVDs from the library for a source of free entertainment.
  • Reduce or Eliminate Cable TV:  If you are in financial crisis, eliminate cable or other cost-based TV. If you do not want to do this, consider reducing channels to the basic programming. Your quality of life may go up by having less TV in your life when you consider some household’s over-consumption of news, violence, and sexually-oriented programming.

Summary: Good cash flow management is key to implementing any financial plan; commit to doing this well. No one likes self-discipline, but it is actually good for us. With proper management of your finances, you will become more confident and less stressed about your future. Remember, one bad financial decision can sometimes take years to undo. Be very careful with all decisions you make.                                                                                                                                                                      

The way to achieve good cash flow management is to:

  • Create a comprehensive financial plan from eFinplan.com.
  • Implement that plan using your team of trusted professional advisers.
  • Monitor your plan regularly to keep track of your progress towards achievement.

This is the final article of a 3-part series: