It is time to make some adjustments to your budget. A new year is a great time to re-evaluate, and make sure everything is still in line with reality. Have any of your line items gone up or down (a rise in food and gas prices are always areas people forget to adjust over time). Instead of giving up on your budget when the numbers don’t work out, just make a few adjustments. Your budget should actually be changing pretty regularly when expenses are added or taken away every now and then.
If some items have gotten more expensive and you’re having trouble staying within your budget, it could be time to try Dave Ramsey’s envelope system.
Whichever budgeting system you use, just be sure it’s one that works best for you.
If you still haven’t jumped on the budgeting bandwagon, a new year is a great time to try! Read on for a few helpful tips to getting started.
Step One: Track Spending
Before you begin, you’ll need to have an idea of how much you spend. Start tracking ALL of your spending. It can be as simple a sheet of paper or as involved as budgeting software for your computer. The purpose is simply to look and acknowledge where your money usually goes.
It’s often easy to forget expenditures such as money for car maintenance or doctor co-pays…having a good worksheet will help remind you of those little (or not so little!) things. Once you determine your monthly expenses, you can see how it matches up with your monthly take home income. The hard part is deciding where you may need to make some adjustments (adios, cable!), and when you’ll have extra wiggle room. The Federal Trade Commission offers a great starter worksheet that will get your mental budgeting juices flowing.
Step Two: Make Your Plan
Once you’ve chosen a method for tracking your spending, it’s time to plan next month’s income and expenditures. That’s all a budget really is, a plan for where your money will go.
Not sure where to start? Consider the most basic of all budgeting concepts, the 50/30/20 rule, as a guideline.
Having a general rule of thumb is a great jumping off point. Whether you’re a millionaire with money to blow or a college student surviving on noodles – the 50/30/20 principle should be part of your vocabulary. It’s a tried and true concept that’s easy to remember. Here’s how it works.
Your goal is to keep your “essentials” at around 50% of your take home pay. For example, if your monthly income is $3000 and your combined house and car payment is $2500 – you’ve got some cutting back to do. The 30% category is classified as your “wants.” This category is, of course, more fluid but is most often where people find themselves in hot water. And finally, the last category is the 20% “savings” category. This can be socking money away for college or paying off credit card debt or even a rainy day fund. It can be tempting to skip this last category but you’ll be glad you did it when the furnace breaks in January!
For a more in-depth discussion of the 50/30/20 rule, check out “Feed the Pig,” a cheeky blog post from the nonprofit American Institute of CPAs. Or, pick up the phone and call your helpful friends at your local Credit Union. We’re always here to help.