Sunday, January 27, 2008

The Budget Crunch

With all the talk of money and money issues as of late, I thought I would provide you with 10 steps to budgeting. It's an ugly word but it works.

1. Be realistic. Sure, we could all save a bundle if we didn't have to eat or entertain ourselves. You can cut your grocery bill by up to 15% or so, but a 25% or more reduction in spending is just unrealistic. Plan on spending some money on entertainment, everybody needs some reward.

2. You're budgeting your money to save money. You're doing this for a reason- make it count. Try to save at least 5% of your income each month.

3. Track your actual spending. Don't fall into the trap of setting up a detailed budget and then forget to track against it. Track your spending daily, weekly, fortnightly, monthly, hourly, whatever- just make sure you're tracking what you actually spend!

4. Make a list of free things to do each month. A concert in the park, hiking on the weekend, volunteer time at a soup kitchen. Be creative.

5. Correcting bad spending habits. You've invested your hard earned money into a budget spreadsheet or budget software, now make it pay off. How do you correct bad spending habits? Discipline and learning from your past mistakes.

6. Plan for the unexpected. Make sure you put aside some emergency funds for unexpected events (medical bills, automobile repair, loss of employment, etc.)

7. Don't panic. If you spend more than you make in a given month, treat it as a lesson learned, not the end of the world.

8. Reward yourself. Try to reward yourself at the end of each month for a job well done. This will help you stick to your goals in the future.

9. Stick with simple budgeting tools. Don't get lost with the latest and greatest budget software that has the most bells and whistles. The more robust the budget program, the more confusing. Keep it simple.

10. Don't let your budget rule your life. The world is stressful enough today, it doesn't need any help from you. Stick to your budget as best you can, learn from your mistakes and try to improve every month.

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