Never back down...

Ok, that's a bit of an over dramatic way to tell you to not give up on your budget. But seriously, that is one of the hardest things about budgeting: keeping up with it.

What do I do? I try to spend about 10-15 minutes everyday on my budget--I know, I know, that probably sounds about as exciting as having a tooth pulled everyday for the rest of your life--however this keeps me from feeling overwhelmed by having to spend hours on it once a month or even once a week.

Also, taking a few minutes every day to input your expenses/income/etc will also give you an excuse to check your budget everyday. (Which is truly the only way to make sure you do not overspend.)

Don't get discouraged either if it takes a while to get your spending in check--which means you blow up your budget two-three months in a row; it's ok, as long as you are making an effort.

However, do not let that excuse roll on into month 4, 5, 10, 11.... Get the picture? It's like quitting a bad habit; you should not expect to be able to change tomorrow, but you should be able to change after a month or two honest effort.

For those of you who are married/share a budget with someone, I'm going to give you some suggestions for getting them involved with the process (without killing each or, or one of you turning into what one friend of mine calls a Budget NAZI!)

Hiatus...

Ok, back to the grind! Been almost two weeks since my last post (that's what a stomach virus, two weekends, a holiday, and the start of college football will do to you).

First, get your spreadsheet ready. (Look here X)

Got it? Good.

We have covered the basics already, so if you need a refresher check out the previous posts. Today we are going to get right to the nitty gritty stuff (If you need a good laugh, click here.)

On the Budget Sheet, the first column contains the descriptions you set on the top of your Entry Sheet; today we are going to enter our budget into the second column.

Oh crap...the "B" word again.

Don't worry, we are going to make this one look easy; find your Income vs. Expenses sheet that we used in the very first post. Got it? Ok, now the goal is to enter the most important expenses first--think Needs.

So, just go down the list and enter your budget for each category. If your rent/mortgage is $700 per month, enter $700. If the minimum payment on your student loan is $125, enter $125--or add up the minimum payment amounts of all of your student loans and enter it here.

Again, start with the most important (i.e. if you don't pay it someone will eventually come looking for you) and work your way to through the Needs. Once you have budgeted those, then enter your Wants. (Don't forget to enter your Debt as well.) Once you have entered everything, take a look at your total at the bottom of that column (it should have a line above it and a thicker line below it).

How does that compare with your income? If it is less, great! Compare your budget with the 50-30-20 rule and see if you are allotting twenty percent to debt (on top of the minimum payment). If you are, then you will have to decide what you want to do with that extra money in your budget (As a bit of advice, my two choices would be Debt or Savings.)

If your total budget is more than your income, you need to do some additional trimming (on the Wants first!). No matter what, try to budget every dollar that is coming in on a regular basis to a category (this will help control any urges to splurge money wastefully).

Finally, this is what you should see at the bottom of that page:

When you enter income on the Entry Sheet (i.e. paychecks, bonuses, gifts, etc...enter everything!) it goes into the Paychecks cell here. The same goes for church/charity gifts--these get subtracted from paychecks before the expenses do.

Net, is your income less said church/charity gifts. This is compared to the actual total of your expenses for the month, which will then calculate your Gain/Loss--this is another way to help you fine tune your budget. Below this line you will see two cells labeled Savings/Debt; again this goes back to my suggestion that if you have any extra money you divide it between these two categories.

The Gain/Loss cell also helps if your income isn't steady/the same every month. If this is the case, you can take this and either add or subtract it to the income column in your next month's budget.

Good luck!

Take a spin...

Last time we spent some time discussing the budget template I offered, and this post is going to continue with the walk through. Again, here's where you locate the template:


You can view it online here (courtesy of Google Docs)


Or download an .xls version here (for use with Microsoft Excel)


(If you do not have Microsoft Office, you can download a 60-day free trial here.)


Once you have the spreadsheet open, you should see this (on Google Docs, Excel/other versions may be different):


Last time we discussed the first column, which contains the budget categories. For now are going to go ahead and take a look at the next two tabs in this file; don't worry we will come back to finish up this first sheet in the next post.

Go to the tab labeled "Entry Sheet" (in Google Docs it will be at the top, in Excel it will be at the bottom). Once there this is what you should see (in Google Docs that is):


Notice the categories at the top of the page, they should automatically change when you change the category names on the "Budget Sheet" tab (with the exception of the first two: Income and Church/Charity).

This is where you will enter your expenses as they occur during the month. It will probably be expedient to add together some expenses and enter them into one cell (i.e. 2-3 days worth of meals/entertainment). This can be accomplished by typing in any cell below the appropriate category name:

=expense#1+expense#2+expense#3

(this could go on forever, well I guess not forever because at some point your fingers would become so arthritic they wouldn't move...ouch)

The expenses will be automatically tallied in the totals column at the bottom, and transferred to the "Budget Sheet" tab. (Don't believe me eh? Well, just try it then. I dare you! No, I double....um, never mind, where was I?)

The same is true for the Income and Church/Charity columns, however they will be transferred to the bottom of the "Budget Sheet" tab.

The final tab, "Bills to be paid", is a quick reference guide you may or may not decide to use. I created it as a place where you can list your recurring monthly bills along with their respective due dates and minimum amounts due.

All right, get ready, because next time we are going to tackle the budget head on. (I thought the refs were impartial? hmm...)

Categories

Today we will tackle another facet of the budgeting process: breaking down those expenses further.

You should already have an idea of where your expenses go, all you need to do is actually name those categories and set a budget. There are a few categories that should be the same for everyone (i.e. rent/mortgage, groceries, etc), but you will undoubtedly have to make up some categories of your own.

I have created a simply template that you are more than welcome to use, however feel free to make any changes (or simply create your own). Again, there are a million budget templates out there, this is just one--however I like this one because it is very simple to use and maintain (plus if you use Google Docs you can access it anytime/anywhere via the web).

You can view it online here (courtesy of Google Docs)

Or download an .xls version here (for use with Microsoft Excel)

(If you do not have Microsoft Office, you can download a 60-day free trial here.)

Once you have the spreadsheet open, you should see this (on Google Docs, Excel/other versions may be different):

As you can see the "Budget Sheet" has quite a bit of information on it.

Starting with the left column you have your budget categories (mortgage/rent, water/sewer, etc).

The next column, labeled "Budget" is where you would enter your actual budget for the month--what you plan on spending. (Why a month you ask? You could do a week/biweekly budget or even a quarterly budget; but a month seems to be a happy medium.)

The "Spent" column is tied to the next sheet (Entry Sheet) and will reflect your actual expenses.

Our next column, "Difference", is simply the "Budget" column less the "Spent" column.

The next three columns are calculated percentages:

The first shows what percent each category is of your total budget (i.e. on this example the Rent/Mortgage of $650 is 26% of the total budget of $2,500)

The next column compares what you have spent to what you budgeted, which shows how much of your budget you have already spent as a percentage.

The third column compares how much you have spent in a particular category, with how much you have spent overall. This is helpful because you can compare it to the first percentage to see how close you are on your budget. (i.e. Is your Groceries category really 8% of your expenses?)

The final column is a visual reminder; when you exceed your budget in a particular category by more than ten (dollars, euros, renminbis, rupees, coconuts) it will display STOP.

Take some time to change the categories if you need to; change the colors, put a rainbow background--ok, not really. But do change the first column (Categories) to suit your particular needs and reflect what you learned from the expenses vs. income exercise you have already performed...and change the colors to make it more visually appealing to you, black, white, and shades of gray? Boring...

A word of caution: don't overwhelm yourself with a ton of categories, this template allows up to twenty as is, and that is a good place to start. You may find in the future that you need more (or fewer) categories; but I would stress the importance of keeping it simply to start with.

Stay tuned...

Where are we?

Hopefully no one is too confused, but just in case (Yes, Justin Case, your commercials do annoy me.) let's take a bit of a review to see where we have been:

Budgets, budgets, budgets: A month (or two) worth of expenses and income to help start your budget.

50-30-20 rule: The "benchmark" for budgeting. (Be sure to check out "Clarification Please" too.)

Philanthropy: Just because you're on a budget doesn't mean you shouldn't be generous.

Everybody on the same page now? Good.

Now it's time for a breakdown...

Hope you enjoyed that, because that's what you are going to be saying soon enough (concerning money/budgets at least--if you think you could take Bruce Lee, go ahead and jump in a MMA/UFC match, I'll send a "Get Well Soon" card to you at the hospital).

Next time we will begin breaking down the budgeting process.

再見 (Goodbye)

Philanthropy...

Tithing/Charitable giving - call it what you will, but there is an innate need in all of us to give something without receiving anything in return.

A bit of history on the word "tithe":

It is from old English and literally means: "one tenth of one hundred" or ten percent; this has been most frequently used by churches to denote the portion of your income you should "give" to God. (Whether you practice/believe in this or not is not what this post is about; just thought I would give you a background on the word--so please, do not spam me to death.)

This is one of the most difficult concepts for people to grasp, yet one of the most important. If you do not believe me, just try it. Find a charity that is dedicated to helping people and go see it--that's right, I am saying go see where you are thinking about giving your money to.

Once you find one you feel comfortable with, start making donations to them on a regular basis. After three-six months evaluate your finances and your own well-being and see if you aren't doing better and/or feeling better about yourself. (There are food banks/homeless shelters in just about every city in the world, just do a quick search or ask around. It certainly does not have to be a food bank that is just a suggestion; give where you feel you are meeting a need.)

No matter where you decide to give, I would caution you to find out what they truly do with the money; ask to see their annual report or simply send your gifts/donations with a note attached stating how/where you wish the funds be used (this is not full-proof, check this article, however a written statement can be considered somewhat binding). You might even write your wishes on the check, in the memo line.

When you find a charity that you are comfortable with, make a commitment to yourself to give a set amount from every paycheck that you receive to this charity. Ideally ten percent is a good number, but if you feel overwhelmed by that, give five percent to start. (One reason I think a food bank is a great place to start is you can ask them how much a meal costs them on average, then figure out how many meals you are providing with your gift.)

I know by this point I have lost some of you; you are thinking "Why on earth would I do that? Give away my hard earned money?"

Call it what you will, but I like to think of it as a way to honor those who have helped you get where you are. Whether you want to admit it or not, someone helped you get everything you have (I know, I know, the Western mindset is "I pulled myself up by my bootstraps, etc, etc.")

Look, whether you believe in God or a higher power or not: somebody gave you a break, someone took a chance on you for that job, someone helped you out in school, someone spoke up for you, someone offered you a promotion...do I need to go on?

Think of this as a way to honor them, and a way to help someone else out with what you have--you worked hard to get it, which makes giving it away that much sweeter.

Do this as a direct reduction of your income, not as an expense--which means do not include this in your budget (do it that way and it becomes much easier to part with.)

Again, I would not include this in your 50-30-20 plan, you will find it much easier to give if you treat this like you are treating income tax and other automatic deductions from your paycheck (i.e. employee benefits--health insurance, 401k's, etc).

You can give your time too, but it will not feel the same as giving away your cold hard cash...you can stop clutching your wallet now!

Auf Wiedersehen!

Clarification please...

A short note to clarify a bit more on the 50-30-20 rule:

The percentages are meant to be thresholds, or guidelines--don't freak out if you find your breakdown to be closer to 70-30-0 or 70-40-0 or even 50-50-0 (however if your breakdown is 70-40-0 you are spending 110% of your income!). 50-30-20 is more of a benchmark, or like the lines on the road--if you cross over the white line a bit your car isn't going to instantly explode (imagine if it did!).

The most important of the three is definitely the "Wants" portion. Like I mentioned in the previous post, I would caution you to maintain a level of no more than thirty percent of your income going to this category--the one exception would be if you have no debt, in which case forty percent is the ceiling I would suggest.

So what about the "Needs"?

There is no "magic" number, but keeping your "Needs" below fifty percent of your income is a good rule of thumb; however I know sometimes it may seem that you are barely meeting your needs. Again, don't freak out if your needs are closer to sixty/sixty-five percent of your income; chances are you can look at ways of reducing this or reducing your "Wants" until you improve this category (i.e. pay off a credit card or student/car loan--your "Debt" portion should be helping with this).

Where I would suggest you seek some serious guidance is if your "Needs" exceed say seventy-five/eighty percent of your income--in which case it may be time to make some difficult decisions (i.e. move to a place with lower rent or get a second job).

Finally, the "Debt" portion. I know twenty percent seems like a lot, but the results are worth it. While you may not be able to devote the full twenty percent to start, if I were you I would not sacrifice this in order to prop up my "Wants"--meaning if your "Wants" are forty percent and your "Needs" are sixty percent, worry more about cutting ten percent from your "Wants" than from your "Needs".

By the same token, if your "Needs" are fifty percent and your "Wants" are fifty percent, try to cut the entire twenty percent for "Debt" from "Wants"--or ten percent for "Savings" (remember, once you have no debt this plan can be modified to the 50-40-10/Needs-Wants-Savings plan).

Au Revoir for now, and Good Luck!

50-30-20 Rule...

Ok, now that we have established the basis for a budget, let's start getting a bit more detailed.

Take your basic income minus expense budget that we discussed in the last post (which incidentally is exactly how the government works; except the crazy thing with them is they try to make sure they spend every dime of income they receive; i.e. "balance the budget"--sound crazy to you too?), and let's take a closer look at it.

Again, I realize that there is a lot of information out there regarding budgets and budgeting tips; realize this: everyone is different so everyone's budget should be different.

That being said, there are a few rules of thumb that I think are important to follow, and today we are going to look at the first:

It's called the 50-30-20 rule. It breaks down like this: fifty percent of your budget should be dedicated to "needs", thirty percent to "wants", and twenty percent to "debt". So, you can call it the 50-30-20 rule or the "Wants, Needs, Debt" rule. Take a look at your expenses (which should be easy because you have that handy list of expenses for your last month nearby!) Now, place each expense into one of those three categories (Wants, Needs, Debt). This may prove difficult, as "wants" and "needs"can become very confusing; so to help let's break it down like this:

First we have needs, simple right? What you need to get by right?

A place to live, food, clothing, transportation, insurance, iPhone, Starbucks, TV...

Hold it! Do you really need a cell phone, cable/satellite TV, or Starbucks?

Cell phone? Maybe. I would argue that you do need a phone, and as I do not have a home phone (i.e. land line) I would argue that I need my cell phone; however I do not need text messaging, mobile internet, or a new ring tone every two weeks. So, break that down with your monthly plan (i.e. $39.99) as a "need" and the little extras you pay for as "wants".

I'm not even going to touch the Starbucks (if you think it's a need then you probably should leave now, and never return...I am serious....why are you still here?...fine, have it your way...).

Regardless of how you want to argue it, cable/satellite TV is not a "need"; you could live without it, so place it in the "want" category.

Needs are best described as true necessities:

Rent/Mortgage (homeowner's fees, insurance)
Health insurance (if it isn't deducted from your check)
Utilities (electricity, water, sewer, etc)
Groceries (again, double stuff Oreos are more of a want, but I digress)
Transportation (car+gas+insurance/mass transit or however you get around--hovercraft anyone?)
Clothing (dry cleaning/replacing what wears out, not shopping sprees to Saks!)
Credit Card/Student Loan/etc minimum payments (yes, if you don't believe me try not paying them!)

What are wants then? Why everything else of course! (Include eating at restaurants here, unless you are required to eat out...yeah, not too many can claim that; so most meals at a restaurant are a "want".)

Great, we have taken care of that; let's see we've got: Needs-check, Wants-check...oh yeah, the "D" word. Debt.

Debt can be summed up as this, anything you pay on a loan above the minimum amount due. What's a loan? Well, for starters: mortgages, student loans, car loans, personal loans, credit cards...wait, a credit card is a loan? Yep. It's nothing more than a short term loan. (albeit at a great rate for the first 21 days!) So, if you have a balance on a credit card, it's a loan. If you have been paying extra on any of your loans it goes here; if not, it's okay--we just have more work to do.

Now, just in case there is someone somewhere out there, some fiscally responsible person who amazingly has no debt whatsoever; what are you doing reading this blog? Wait! I'm kidding!

I have one thing to say to you: Way to go!
Now, what to do with your twenty percent? Well, my suggestion would be to take half of it (ten percent) and start putting it into savings; either for retirement or just into an interest bearing account (even if it is only paying two-three percent).
The other ten percent? Have fun! Do whatever you like with it! You earned it! (which should be everyone's goal!)

Until next time...

Budgets, budgets, budgets.

Need I say more? If you do not have a budget, you will never ever have any wealth or peace of mind financially. Even a billionaire will eventually end up on the street without a budget.

They are a way of life (or at least should be) for anyone who wants to control their money, instead of being controlled by it. For those of you who claim to not have enough time to deal with a budget; you do. At first, it may take a good bit of your time just to keep up with your budget; however the good news is as time goes by it gets easier (not really, you just become more adept!).

So, if you have a budget already--good for you; if not? Get one. Not tomorrow, not next week, today. A Google/Bing search will turn up some simple, yet very useful budgets already set up for you.

There is also budgeting software out there, some free, others you have to pay for; however I would suggest when starting out you keep it simple--even something handwritten will do to start!

No clue where to start? Just start at the beginning of the next month and write down every penny you spend (yes, not an easy thing to start doing; but it is worth it, trust me!) A program such as Microsoft Excel will help (or do what I do and use Google Docs, they have a great spreadsheet program that allows you to enter and save your expenses from anywhere).
Once you get a month (or more) worth of expenses you can see where you are spending your money. Also, keep your pay stubs!

Now for the harder part (at least where you may start feeling the pain). Look at your paychecks for the month you have an entire months worth of expenses and calculate your after tax income (just add up your actual checks/amount deposited in the bank). Do the same for your expenses (yes, all of them! even the $.65 coke you bought from the vending machine), and subtract your expenses from your income like so:

Income (checks) $ 2,500.00
Expenses (total) $-2,395.50

Difference $ 104.50

Congratulations, you made $104.50 more than you spent! (Don't get discouraged if this number is more like $4.50 or even $-104.50; this just means you have some decisions to make.)

More to come...