Know Where Your Excess is.
One of the most important factors in managing a budget is to know where your extra money is. After doing budget planning of expenses vs. income take an unbiased look at it and see how much is left over each month. Of that amount you will want to put at least half of that towards your savings and the other half towards your cost of living.
When you objectively look at your budget plan you can see that you may have allowed more for a particular expense than it actually costs. Those funds should be kept as a rolling balance in your account. Just make note that there is X amount of excess to be applied where needed. Every once in a while a bill will run over what was budgeted for it and you will have the extra funds available. A separate account for your rolling balance may be necessary, this way you always know which amount is excess from budgeted expenses.
Also keep an eye on what expenses can be reduced if it’s necessary. Food out, dry cleaning, hobbies or any entertainment items can be increased at first to allow for a certain standard of living, but can also be reduced for things like a dentist appointment or doctors visits if they come up unexpectedly.
Budget For Special Events
A lot of people find themselves running into this situation. A holiday weekend is a few days away and they would like to go out of town but their regular weekend funds aren’t enough. This can apply to anything that may come up that’s not a necessity but you’d really like to do. Budget Planning can help prepare.
Christmas is a great example of budget planning ahead. The average consumer starts their Christmas shopping in November to allow them more pay periods for shopping for the perfect gift. Whether they realize it or not, they’re inadvertently budgeting ahead. The same concept works for things like the fourth of July, New Years or any other event that you’ll want more money than your regular weekly discretionary income.
If you want to have a weekend trip, start planning financially a few weeks ahead. Most people would trade their smaller weekly entertainment budget for a larger budget over a long weekend or holiday.
The same applies with major purchases. If it’s January and you know that your washer and dryer aren’t going to last another year, put a column in your budget planner for appliance replacement. Then try to put a little away each week for it. When the dryer gives out, replace it and keep saving the same amount knowing you’ll need a new washer to go with it. Most of the time when a consumer suffers from a financial setback, it’s because something came up that wasn’t expected and outside of their financial plans.
Expect the unexpected, hope for the best and plan for the worst. This philosophy will keep you in the game even if you’re thrown a curve ball.
Manage Credit Spending.
With proper budget planning you can see what you have for income and what you have for expenses. If you know that your income will not change in the near future and you are unhappy with your present discretionary income, a lot of consumers will turn to credit purchases. The ones we can all relate to are credit cards. Credit cards allow for instant gratification and instant relief.
After completing an honest assessment of your debt to income you may not be satisfied with what you have left to live on. If you’re used to having $100.00 per week to spend as you please, it may be difficult when that is cut in half due to adding additional categories to your budget plan such as savings or car repairs.
At this point many consumers will turn to credit cards to maintain their accustomed lifestyles. This can be detrimental to a consumer who is already on a tight budget. What typically happens is the credit card payments increase due to the added spending and the balances are increasing putting them further in debt. Eventually you run into the situation of having no discretionary income. Everything that would be, is now being applied to credit card bills. You’ve spent ahead rather budgeting ahead.
Eliminate Existing Debt
For consumers that have completed their budget planning knowing that they have a lot of existing debt to pay off their primary focus is to try to eliminate the debt that they have. They will be willing to compromise certain areas to do so. For consumers that complete a budget plan without this in mind, but find themselves in the same situation, they should be budgeting accordingly.
A consumer should look objectively at what their outstanding debt is and how long it will take to pay it in full. Only the individual can determine how much is too much, or how long they are willing to wait for financial independence.
When you have your monthly budget plan set up so that all of your payments to lending institutions are being made in full and on time each month, with your regular living expenses set aside, leave it that way. Keep your budgeting amount going to credit cards and other revolving accounts the same each month, without any fluctuation. You will take years off the time it will take to pay them in full, and save thousands of dollars.
Here’s an example that can be applied to one account, or your entire debt load: An account with a balance of $5,000.00 and a 15% interest rate at the lenders minimum payment each month (estimated $100.00 reducing monthly as your balance decreases) it would take 23 yrs 9 mo to pay in full at a total amount paid back of $11,868.00 If you were to make a fixed payment on the account (your current budgeted payment est. $100.00) it would only take 6 yrs 6 mo with a total paid out of only $7,731.00 That’s 6 times faster and savings of $4,000.00, or 35%.
All of this is contingent upon no further debt being accrued on the account. If you made the minimum payments and kept using the card, you’d literally never pay it off. Look at your goals objectively, that is the only way to stay on course with budget planning.
Free Budget Worksheet
Keep track of your incoming money and expenses. Knowing where your money is going is the first step to managing and staying our of debt.
