Changing Your Financial Habits: Budgets
Changing Your Financial Habits: Budgets
Today we are talking about habits. Habits can be many things that are both good and bad. A bad habit may be biting your nails. A good habit may be making your bed.
We have habits in almost every aspect of our lives. Little things like how we brush our teeth to bigger ones like our eating or driving habits.
Many of us may not even realize that we have habits when comes to our money. Some may be good, some may be not so much.
It seems like when people think of a habit, they automatically think it’s bad but that’s not necessarily true. The definition of a habit is: a settled or regular tendency or practice, especially one that is hard to give up. That isn’t always a bad thing.
How many of you know someone who brings their lunch every day until payday, then they treat themselves to lunch that day? That’s actually a good habit. It’s a great way to save and to give yourself a treat! The challenge for many is that receiving that check is when the spending begins and before long all the money is gone and they waiting for the next paycheck. Living paycheck to paycheck is all to normal today, but when the money is gone have you paid all your bills? Were you able to get all the things you needed? Did you know how much you could spend or did you just go by your bank balance?
Do you use a budget? A recent Gallup poll said only 1/3 of Americans use a budget. We need to do better.
How many of think you don’t need a budget? You are thinking that your bills get paid and you have money left over so it must be ok. A budget gives you a picture of your income and expenses and helps you know what is really going on with your money. You may think everything is fine, but chances are, it could be better.
Budgeting can actually be easier than it seems. There are sample budgets online that give you an idea of how to set one up. There are also blank templates you can print and fill out. A good search will help you find one that most closely fits your needs.
There are several ways to set up a budget. The blank template, printed with pen to paper and calculator. You can set up an excel spreadsheet and have it do your math for you (just make sure your formulas are correct to get correct numbers), or there is an APP for that. There always is isn’t there? Mint and Pocketguard are 2 that Nerdwallet highly recommend.
The key when setting up your budget is to track ALL your income and ALL your expenses.
When you are adding expenses, remember there are 3 categories of expenses.
Fixed which are the things that shouldn’t really change like your rent and car note.
Variable are things that are known but may vary like groceries.
Periodic are known but only come up occasionally like birthday gifts, events, school fees or uniforms.
For variable or periodic expenses, consider setting aside a certain amount each month to cover that expense. Then when the time to pay the bill or buy the gift arrives, you have the money to take of it.
Also, don’t forget to add savings!
Back to ALL expenses. When I say all expenses, I mean all. You should include your coffee runs, the times you eat out – all of it. This helps you see where you are spending so you can see where to make adjustments. Is your spending above or below your income? I think the goal is obvious, but I’ll say it… you want more income than expenses. So, if your income is below your expenses, you have a couple of options… supplement your income or cut your expenses.
And when you do that, make sure you take of your needs first. Shelter, food, transportation, and medications are the things you need, then you look at the wants and see if you can trim anything there.
Also keep in mind that budgets and spending will adjust as your life changes. If your job changes, you move, or your family grows, this will change your spending needs. You should adjust accordingly as they happen.
Just know If you’ve never really worked with a budget before, give yourself some grace as you get started. It can often take a couple of months to settle into a budget and make it work for you. With a little practice I think you will see the advantages. So set your budget then, USE IT!
In order for a budget to really be effective, you need to track your spending. Your budget is how you know what you can spend in specific categories, like rent, food, gas, entertainment, etc but you still need to track what you spend to make sure you stay within your budget.
As you do this, you may find you didn’t budget for everything. You may find you are going over budget or way under what you thought. The truth is, if you don’t track what you actually spend, the budget won’t really matter.
Of course, there’s an app for that too! Several in fact. Or if you don’t want to use an APP you can also simply keep your receipts and check those against the budget. Or if you are still writing checks, get duplicate checks, this way you have something to put in your records for tracking.
If your bank or credit union offers online banking and / or an app I recommend using those as well. You can see all your transactions and make sure everything looks correct. Be aware though, as you check those transactions, there may be pending items that don’t show right away. Those are things that haven’t come through your account yet, but they will. So make sure you keep those in mind when you are looking at your balance.
Knowing your balance is important. If you write a check or have money come out of your account and you don’t have the funds to cover it, you start incurring fees. And those fees are no joke. They can add up quickly. Once one check or payment gets returned, it can often start to snowball because it may not be the only payment coming.
For example. Let’s say you pay your cell phone bill and it puts your account in the negative. So that’s the bill plus the fee that you will owe and the fee is often $25 or more depending on where you bank. Then let’s say before you can get to the bank to clear it up, your car note comes through, then your insurance, then the gas you put in your car. Those are $25 each. In this example, that adds up to an extra $100 that I’m sure you could have spent somewhere else.
This a bad habit that too many fall into and it costs them money. So what does that tell us? Track your spending!
Budgeting and tracking your spending are great habits to develop and they can help you become financially successful. If you don’t use a budget. Start one today! If you have questions, reach out to your bank or credit union. They are a great resource for help getting you going in the right direction.