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budget

5 Reasons Why You Need a Budget!

By //  by Khaleef Crumbley

If I asked you to tell me how much you spend eating out or buying gas each month, could you tell me? What about your household’s true cost of living?

This is the most basic reason you need a budget: To be able to plan and track where your money goes! Most people who I speak to about their finances have no clue how much they spend on a monthly basis. All they know is that by the end of the month, their bank accounts are nearly empty and they are waiting for their next paycheck.

Even if you don’t find yourself scraping together pennies at the end of the month, you still need to have a budget in place. In order to take control of your finances you need to come up with a plan. This means assigning a job to every dollar that you receive before you ever receive it.

How? You need to create and update a budget in order to plan and keep track of your spending. This goes both ways – if you don’t keep track of your spending, then creating a budget is pointless. You have to periodically evaluate your spending to ensure that you are staying on track.

Why You Need A Budget

Budgeting - You Need A Budget

You Need A Budget To Accomplish A Financial Goal

It will be nearly impossible to accomplish a financial goal without a budget – of course it can be done, but with a lot more hassle and waste. With a budget, you can allocate a specific amount toward your goal – whether it be savings or debt repayment – and ensure that it is reasonable.

It will also be easier to accelerate your plan by reducing spending in one or more areas and funneling that money into your “main goal”.

If you look at our 52-week savings challenge results, you’ll see an example of how budgeting can help you reach a financial goal.

You Need A Budget To Help Handle “Shocks” To Your Finances

If you find out today that your job will be cutting your salary, or implementing furloughs (mandatory, unpaid days off), how would you handle it? Would you be able to make the necessary adjustments?

If you keep track of your spending (which will be necessary to follow a budget), it will be easy for you to make these adjustments. You will be able to look at every area of spending and determine where you need to cut back – or even if it’s worth it to try to increase your income.

Learn how to set up a financial contingency plan (and no, it’s not as simple as having an emergency fund)!

You Need A Budget To Identify Areas Of Waste

Waste Money

Most people who make small daily purchases (like coffee, breakfast, or lunch), are shocked to see how much they’re really spending in these areas. It’s easy to spend $5 on a cup of coffee and a bagel in the morning, $3 on a candy bar and soda from the vending machine, and then spend $6-$10 on lunch without even thinking about it.

However, if you have established a budget, it will become increasingly difficult for these expenses to escape your attention.

The first month after you set up your budget will probably be a big eye-opener for you (it definitely was for me). Remember that coffee, candy and lunch from above? You would probably budget about $50 or $75 to that category. However, 22 days (the typical amount of work days in a month) of that type of spending will cost you nearly $400 every month!

Committing to (and adjusting when necessary) a budget will help you to evaluate this type of spending and decide if you should divert money from another category, or change your habits!

You Need A Budget To Ensure That Any Surplus Is Not Spent On Frivolous Items

Similar to looking for areas of waste, this will call for you to identify areas where you can reduce or eliminate spending. Once you allocate your income across living expenses, giving, debt repayment and savings, you may find that you have money left over (a problem that we all would love to have).

Instead of this money just being absorbed into your spending (something that usually happens without a budget), you will be able to give this surplus a new assignment. This, of course, depends on your exact situation and level of risk aversion.

You may choose to give more, accelerate your debt repayment, increase your savings, or master your investment strategy. The point is that having a budget will easily allow you to identify these opportunities.

You Need A Budget To Help Develop Discipline In Multiple Areas

Value of Time

This is accomplished in a few ways. First, you are forcing yourself to tightly control your spending, which will call for discipline – especially if this is the first time you have done this.

Secondly, by constantly monitoring your finances and having to make small adjustments, you are more aware of every financial decision you make.

By holding yourself accountable for every dollar that you spend, you will tend to evaluate your free time in the same manner. For instance, you will begin to consider the value of your time in terms of money and lost opportunity, which may cause you to re-evaluate your decisions.

These are just some of the reasons why you need to develop a budget. Over the next few days, we will look a few painless steps you can take to create a budget, and also to change your thinking about money!

Read The Rest Of The Series

  • Consider Your Income

  • Keep Track Of Expenses

  • Setting Goals

  • Evaluate Expenses

  • Celebrate Small Victories

Reader Questions

  1. What are some of the benefits that you see in having a budget?
  2. How often to you review your spending to ensure that you are within your budget?
  3. Have you ever discovered that your budget was unrealistic?

I look forward to your comments.

Filed Under: Budgeting Tagged With: budget, Budgeting, discipline, Personal Finance, personal finances, spending

What Your College Won’t Tell You About Your Money

By //  by guest

The following is a guest post from Martin of Studenomics, where he tackles what to do after college and anything else that could be on your mind when it comes to money.

September is here. As much as I hate to type this, it’s certainly true. The back to school commercials are up. It’s getting cooler outside. You have to wear a sweater at night. You now have to wake up before noon.

School is here.

Before you get depressed, let’s cheer up! Next summer is only a few months away or so…

I wanted to share with you what your college won’t share about going back to school so that you survive financially. I don’t want you to end up in thousands of dollars in debt. I don’t want you to be paying off student loans into your 40s. I want you to be debt-free early on. If I can do it, anyone can.

What Won’t Your College Tell You About Your Finances?

College Financial Literacy

You Can And Should Work.

Yes, you should be working. If you work even a little bit, this will help you out with your debt in the future. Every dollar today counts. You won’t get rich, but you’ll dent your debt while in school.

You also can’t fool me here. I always had an active social life and I still held a job. I know that you think you’re busy, but trust me, we all waste time. Working forced me to manage my time better and not to mess around. Those hour-long bus rides were my saving grace before finals.

But Martin! I can’t work, I swear.

If you’re program is too intense to even work a few hours per week, then you can work during your time off or apply for a work term. Either way, you should work during college. It will get you into the habit of being a real person when you graduate and it will help you cover some of your bills.

It’s also not too late to apply for a work term. You can try to get in for the next term or some time in the future. Please try to apply at least. You might have to give up your summer, but you’ll have money to help with bills!

There’s Free Money Available To You.

Money should never hold you back from a quality education. Every college offers all kinds of financial assistance. You can apply for any or all of the following:

  • Scholarships.
  • Bursaries.
  • Grants.
  • Awards.

You have nothing to lose from applying. I suggest that you take the next rainy afternoon to apply for all of these forms of financial aid. The worst case scenario is that they say no.

I dated a girl who would get insane amounts of financial assistance every year. She simply applied for everything because she was poor.

Think about it this way: if you get paid $12 an hour, how long would it take you to earn $2,000? Now imagine writing an essay in an hour that leads to $2,000. Not so bad, right?

Where do you find out more about financial help?

Every college has an office for this and a portion of the website dedicated to finances. It’s usually pretty easy to figure out. You can look for specific bursaries, scholarships, grants, or awards. They offer ones for each program and even for every specific niches.

All you have to do is print out the forms and submit them before the deadline.

There Are Plenty Of Free Resources (And Awesome Stuff).

There’s so much free stuff out there. You just have to look around.

For example, you can easily workout without a gym membership when you can’t afford it. However, as a student you might have a free gym membership as part of your package.

A Few Other Free Or Cheap Things To Look Out For:

  1. Concerts on campus.
  2. Student discounts.
  3. Health benefits.
  4. Resources (resume writing help, job search, etc.).

Don’t spend money that you don’t have on things that can be free to you or close to it.

This Is The Best Time To Live On The Cheap.

Let’s be honest here. One of the most charming aspects of college is the extreme frugality that we go through. This is the one time in your life where frugality is embraced. Being a poor college student will force you to make the most with the least.

For example, my brother can eat off nothing. Seriously, he’ll spend a $100 over a month sometimes on food. I have another friend who has had the same pair of shoes for years. He wears these shoes everywhere (formal events as well). I personally believe that he might be better off going bare foot at this point.

How cheap will you be as a student?

Watch Who You Hang Out With.

I know, that you’re a grown up. This doesn’t meant that you won’t make plenty of mistakes. All I’ll say is that you have to watch who you hang out with. If you get involved with the crowd, you can easily start spending money and racking up the debt on things that you don’t need. Your friends in college are very important.

I wish you all the best in college. I hope your grades are through the roof and that you manage to survive financially. Even if you apply one of these tips, you’ll thank me one day.

Don’t forget to check out Studenomics!

Filed Under: Education Tagged With: Awards, budget, cheap living, College, cutting costs, Education, Frugal, grants, scholarships, student loan repayments, student loans, work study

Does Your Spending Reflect Your Priorities?

By //  by Khaleef Crumbley

To me, one of the most basic principles in all of personal finance is the fact that someone can take a look at your bank/credit card statement and identify your priorities. How and where you spend your money should be a direct representation of your priorities and if it’s not, then you either have to change your priorities or adjust your spending.

Examining Our Spending Habits

If many of us look at our bank accounts we would see that cable TV, Internet service, private school for our children, comic book collections, video game consoles, computer equipment and other electronics, and entertainment are all high on a list of priorities. The problem with that is if you ask many people what their priorities are, those things are not high on the list.

When you start to talk to people about what their priorities are they will mention their goals and dreams and aspirations – a lot of these things may seem out of reach. My contention is that if these things are as important to us as we say they are, then they need to take up the bulk of our spending.

Examining Spending

I understand that there are some basics that we have to spend money on, such as food, shelter, and clothing; but outside of that, just about everything else that we have in our lives can be seen as a luxury. There were times when most of the these luxury items didn’t exist, and even today – with them being in abundance – there are many people who thrive and survive without them.

I am not trying to sit here and judge everyone’s spending or priorities, but what I am saying is that we all need to evaluate our spending and make sure it is in line with our priorities and goals. If you love to travel and you really don’t care that much for video games, I expect to see you with a savings account earmarked for your travels, and I don’t expect you to spend an extreme amount of money on video game consoles, subscriptions, and everything else that’s associated with game play.

The same thing is true when it comes to cars. If having a luxury car is not a priority, then you shouldn’t have an enormous monthly car bill, while the other things that you hold near and dear are being neglected.

My Spending Habits In The Past

As I have become more mature over the years when it comes to financial matters, I realized that my spending has not always been in line with my goals and priorities. However, I was able to correct this very early on. Although I have made many mistakes with my finances since becoming an adult, this is one thing that I have no longer had trouble with.

It wasn’t that I was mindfully spending in line with my goals, it’s just that I was always so broke and my income was so small that I was extremely limited on how I could spend my money, so my goals always had to take priority.

So what I chose to do was spend on things that I love: giving to church, music (I’m talking here about instruments and other things help me to be a better musician), spending time with friends and family (which would usually involve increased spending on eating out and also on gas), education, and other smaller things that I felt were important at the time.

The biggest problem that I faced was a lack of patience, and many times I was unwilling to wait until I had saved enough money in order to purchase the things that I thought were important.

We Need To Determine Our Spending Motives

It is vitally important for us to examine every dollar that we spend and what the motive is behind that spending. A failure to do this will mean that we will pour thousands or even tens or hundreds of thousands of dollars into merchandise, experiences, and other things that don’t bring us long-term satisfaction or pleasure.

American Dream Today

Doing What’s “Expected” Or What Moves Us Toward Our Goals?

Too many of us have maxed out credit cards and other huge loan accounts because we are paying for things that barely bring us pleasure or help us to our goals. For instance, I have seen and heard so many people state that buying a home was a necessity, even though their life did not necessitate it (by their own admission after a round a questioning). In most cases, their stated reason for wanting to purchase a home was usually something along the lines of, “this is what adults do”, or they’re, “moving on with another step in their life”.

So essentially, they felt that from where they were in life, the next natural step was to purchase a home – in other words, they were pouring money into an expectation that society placed on them, rather than something that they generally wanted in their hearts.

I believe the same thing happens with cars: we get to a certain age where buying a car for a few thousand dollars (that isn’t the top-of-the-line and may need a couple of small repairs) no longer satisfies us. We feel that as we get older – as almost a rite of passage – we should go out and buy an expensive car, or at least a new one, and tie up tens of thousands of dollars for years at a time. However, if we examine our priorities, having a brand-new top-of-the-line car doesn’t make the list for most of us.

So Is Enjoying Material Things Sinful?

Again, I’m not saying that anything material is bad, but what I am saying is that we need to make sure that our spending supports our goals in life. I know this sounds pretty simple, but most of the people I sit down with (to create or revamp their budget) do not follow this principle.

I have no problem with someone spending $1,000 or even $1500 on food and entertainment in a month if that is what is most important to them. However, I would also expect that person to cut out any unnecessary spending in order to balance their budget (if that is needed based on their income level).

Chasing What Matters

Chasing What Matters!

I could think of the man who I wrote about a few years ago, who was content in an 89 square-foot home (or even the guy who ate a relatively healthy diet for $1/day). Obviously having a huge home was not at the top of the list as far as his priorities were concerned; so he puts his money towards things that are important to him, and he lives in a home that is smaller than many master bedrooms that I’ve seen.

So that is my challenge to you and to me, figure out what things are most important in your life and make sure you’re spending matches that. Because if it doesn’t, then you are wasting a lot of money; and if you are in debt, you are essentially borrowing to pay for a dream that you don’t even want!

Filed Under: Personal Finance Tagged With: budget, Increase Spending, Priority, Spend Your Money, spending, Spending Habits, Spending Money

Have a Budget Account – To Keep You From Raiding Your Emergency Fund

By //  by Kevin M

Most of us are familiar with the concept of an emergency fund and why you need one. It is the most fundamental type of savings that you can have, because it is there to provide a cushion against sudden and unexpected financial issues.

Some people are never able to get an emergency fund going. As a result, they often don’t move on to achieve any level of financial independence because they are constantly faced with emergency situations and no funds to deal with them. Others establish emergency funds, but end up draining them for non-emergency purposes.

Emergency Money Box

The best way to avoid that fate is to set up dual savings accounts – an emergency fund, and a budget account that will prevent you from raiding your emergency fund when it is not absolutely necessary.

Set Clear Definitions For An Emergency

The only way to have a successfully functioning emergency fund is if you set very specific definitions as to what constitutes an emergency, and you never dip into the account unless the crisis fits neatly within the definition.

Everyone’s concept of an emergency fund tends to be a little bit different, but I think that the key definitions are sudden and unexpected. Sudden, as in an event that seems to come out of nowhere. If it is something that you knew was coming, it does not fit within the definition of sudden, and is not a legitimate emergency.

“Unexpected” is another critical definition. If a financial event is truly unexpected, it means that you had no reason to prepare for it in advance. Anything that you do know beforehand should hardly constitute an emergency.

A job loss, for example, can qualify as an emergency because it is sudden and unexpected. Replacing all four tires on your car doesn’t fit either definition, because it is a maintenance item that you knew about long in advance.

An Emergency Fund Should Never Be A General Use Bank Account

An emergency fund should be an account that is special and set apart from the rest of your finances. If you are using your emergency fund simply to cover monthly budget shortfalls, that is not a true emergency fund. It is important to maintain that distinction, otherwise an emergency fund is simply not an emergency fund.

Your checking and savings accounts should represent your general use bank accounts. That means they are available to cover your normal budget, as well as any expected expenses. If there is an imbalance here – that is, an insufficient amount of money in these accounts to cover your expenses – then you have a structural financial problem. The problem could either be insufficient income, or excessive spending. An emergency fund will not fix either of those problems, nor should it be expected to.

Set Up A Budget Account To Handle Expected Expenses

One of the ways to avoid imbalances in your budget, is set up some sort of budget account. This should be an intermediate level account. It should be more accessible than your emergency fund, but less so than your checking and savings.

While your checking and savings should be available to meet your normal spending budget, and your emergency fund is held for true emergencies, a budget account can function as a halfway type of account.

You won’t use this to pay regular bills, but rather you’ll use it as a an account to pay for anticipated expenses. This will largely include maintenance costs and near-term spending priorities. Knowing these expenses are coming up, a budget account will enable you to put money aside in anticipation of meeting them.

Maintenance costs that you should be funding through your budget account can include:

  • Expected car repair expenses. If for example you expect to average $1,000 per year for car repairs bills, you should be putting away about $80-$90 per month to budget for this.
  • A roof replacement that’s expected in five years – if the cost will be $6,000, you might want to begin saving about $100 per month in anticipation. The 60 months between now and then will allow you to save the money you need.
  • Your refrigerator is ten years old, and it will cost $1,000 to replace; figuring it will last another two years, you may want to begin saving at least $40 per month ($1,000 divided by 24 months).

Near term spending priorities might include some of the following:

  • Saving up money for a family vacation. If you know that you’ll be spending around $3,000 for your vacation, you should be putting $250 into the account each month ($250 X 12 months = $3,000).
  • Holiday expenses. You can think of your budget account as being something like a Christmas club account – putting away a certain amount of money in anticipation of heavier expenses at the holidays.
  • Your eight year old looks like she may need braces in a few years – you can begin saving for this in your budget account.

Each of these expense types are fully expected, and therefore they are hardly emergencies. You can and should budget for them, and by having a budget account set up you can do just that. If you do it faithfully, you will not need to raid your emergency fund, nor drain your regular checking and savings accounts.

It seems a bit complicated, but can you see the merit of having dedicated accounts to cover different levels of expenses?

Filed Under: Budgeting Tagged With: Bank Account, budget, Budget Account, Budget Shortfall, Budgeting, Checking And Savings Account, Emergency Fund, emergency funds, expenses, finance, monthly budget, personal budget, Savings, Savings Account, Secured Financial, Your Emergency Fund

Be Sure To Budget Fun Into Your Family Finances

By //  by guest

[The following is a guest post by Miranda Marquit, about the need to budget fun into our finances]

Budget Fun Into Your Family Finances

When many of us think of budgets, we immediately groan – and think of restrictions. While it is important to make sure that you save money, get good deals and avoid debt, you also need to think of your budget as a way to enable you to have fun. While you’re going through your monthly budget, make sure that you include a little enjoyment.

Prioritizing

Part of effective budgeting is prioritizing your spending. Think about what is important to you, and what you really like to do. If you enjoy playing video games, don’t impulsively spend money on a new DVD. Budget your discretionary income so that you can be the things that are most important to you.

This can also include saving up for a vacation or a major purchase. Remind yourself that your priority is to enjoy that family trip. Budget your money so that you can set some aside in savings so that you can go on your trip in four months instead of seven. When you are budgeting in the fun stuff, you need to make sure that your spending reflects your values – and you need to make sure your needs (food, shelter, transportation, etc.) are covered first.

Inexpensive Fun

The fun category in your simple budget doesn’t need to be huge in order for you to enjoy yourself. There are plenty of entertaining things you can do for less. Sign up for daily deals and discounts to see if you can score a promo price on some of your entertainment and recreation costs.

Also, consider low-cost activities. A picnic in the park is a great activity – and it doesn’t require a large expenditure. Bike riding, family game night, a Red Box movie with homemade popcorn, and a neighborhood scavenger hunt are all low-cost activities that everyone can enjoy.

You can even save money on family outings. Go to a matinee, or go to the $2 movie, instead of visiting an expensive theater during the evening. Instead of getting goodies at the show, go out for ice cream afterward. Look for discount passes, free admission days and local specials at museums, amusement parks and zoos. During the summer, many city parks feature free concerts.

When you make your fun budget, make sure you consider the ways you can save money and have a little inexpensive fun. You might find that the “fun” portion of your budget doesn’t need to be as big as you thought.

Bottom Line

Leaving fun out of your budget can leave you feeling deprived. However, it doesn’t have to break the budget. Carefully consider how much you can spend on enjoyment each month, and then look for activities that fit into that budget. With some creativity, and a focus on activities that provide you the opportunity for some family fun, you might be surprised at how much fun you can have, no matter your budget.

Miranda writes for a variety of personal finance web sites, including the AllBusiness Personal Finance Corner and InsuranceQuotes.org, a site specializing in online insurance quotes.

photo by photostock

Filed Under: Budgeting Tagged With: budget, budget your money, debt, enjoy, enjoy life, family finances, finances, fun, fun stuff, inexpensive, monthly budget, your family

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