Monday, January 24, 2011

Budget - a plan for spending

Many people look at the word "budget" and cringe.  One thing my husband and I learned early on in our marriage is that a budget is not a restriction.  It is actually a plan for our spending so we know we have covered all our required areas and left some for our future goals.  We get pretty creative sometimes in how we choose to limit our spending in some areas so we can free up money to be used other places.

Both of us grew up in homes where money was tight, but our parents were good to not spend what they didn't have.  It meant we went without a lot of things we saw our friends getting.  This taught us a valuable lesson - you don't need all those things.  You can grow up a well rounded individual without having the latest and greatest new craze.  Dave Ramsey uses the phrase, "Live like no one else, so you can one day live like no one else."  This means make the hard choices early on to stay out of debt and go without many things your neighbors may be choosing so that one day, you can enjoy financial freedom like many in America will never feel.

So the big question is how to do it -

First -
Make a record of all you are spending.  James and I found that we really needed to do this for an entire year to record it all.  Some things only come due once a quarter or every six months.  Birthdays and Christmas added expenses some months that weren't there other months.  Also, utility bills fluctuate with the seasons so after recording expenses for the entire year we were able to include all of this information.

During the time that you are recording, begin to recognize places where you may be able to cut back.  Set up some categories and challenge yourself to stay below a certain level.  It has become a bit of a game for us.  Can we do groceries for less than $100 week or can we come up with fun things to do that only add up to $20 for the month?

As you determine hidden savings within your budget, you can decide where these savings will go.  First, fill an emergency fund of at least $1,000.  You will eventually want to build this higher but not until you are completely out of credit card debt.

Many families carry a balance on their credit cards.  This needs to be the area that you focus your extra savings on first and commit to never adding to, or carrying a balance again.

This gives you a beginning and something to think about - I'll post more soon about how to find savings and what to do with this "new found" money.

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