In my last column we discussed the
alarming news that the majority of Americans are living paycheck to
paycheck; barely making ends meet. We hopefully agreed that more money from
tax cuts would be nice, but what we really need is Better Budgeting, in every
American household. Then we talked about the importance of
setting up a budget and living it.
* * *
Now, let’s take a look at how a budget
should work and see if we can get out of this ‘living paycheck to paycheck’
syndrome. And as it is with many big accomplishments in life, what you need
is, a plan!
Making a Plan
Assess Income and Expenses – Write
Out a Budget
Whether you write your budget out on a
ledger or sheet of notebook paper, use software programs such as
My Budget Planner,
Microsoft Money, or the
Budget Map checkbook system, just make sure your outgo does not exceed
your income. If it does, continue working each month to make the numbers
match up better, making changes to your income or lifestyle as best you can.
Create a Schedule for Paying Bills
Second to sizing down our home 4 years
ago, this has been the most helpful self-imposed detail for our own family
budget. I keep each month broken down into our bi-weekly paychecks, and
designate which paycheck pays which bills. When extra money comes in or
when the bills are less than expected, I use those opportunities to get
ahead. I adjust the budget and move bills from one paycheck to an earlier
one, meaning I now basically have the money to pay all of our bills long
before they are due.
Reduce Debts
This one’s a no-brainer, get those debts
paid off the best you can, as quick as you can. One of the best ways to do
this is to make a list of your debts and start paying off the smallest
balance first, then the next smallest and so on. Each time you get a debt
paid off take the money you would have paid on that and put it towards the
next one you’re working on. And meanwhile, try your best not to accrue any
more debt.
Reduce Spending – Keep Track of Daily
Expenditures
If you’ve made a list of all your
spending for the last 30 days as I suggested in Part 1, then you’re off to a
great start. You should have a rough idea of how much you’re spending each
month and what you’re spending it on. ake adjustments to your budget if
needed or reduce your spending. If you’re still unsure where all your money
is going or feel that it may fluctuate from month to month, keep a tracking
list for 90 days and then figure the averages. See the example figure
below.
|
Month |
Item |
Amount |
|
January |
Mary’s Lunches |
$ 30.00 |
|
February |
Mary’s Lunches |
$ 50.00 |
|
March |
Mary’s Lunches |
$ 20.00 |
|
Totals |
- |
$100.00 |
To figure the average monthly spending
for each item, take the total amount (in the example above this would be
$100), and divide by 3. Thus Mary’s average spending for lunches will be
approximately $33 per month and this is what she should budget for.
Reduce Monthly Bills - Size Down if
Necessary
You never know, you may think you’ve cut
every extra expense that can go, but there’s usually a few more expenses
that can be cut. It may also help to think of these cut-backs as temporary,
for they usually are.
Ration Monthly Income – Save as Much
as You Can
When you create your budget, of course
you’ll need to ration your monthly income to cover all of your expenses
(housing, utilities, bills, doctor visits, gas, food, haircuts, clothing,
etc…), but don’t forget to add a section for savings into your budget, based
on your income. If you’re unable to save even $5-10 a month then make it a
goal to start as soon as possible. Once you’re able to start building a
savings account you can begin investing and earning interest on your money…
instead of paying interest on your debts. (Be sure to pay off most of your
debts first, especially those with high interest rates.)
Increased Income
If earning more income is an option for
you then go for it. Just remember to have a plan for where that extra money
is going to go because if you don’t, it could be just another paycheck that
disappears.
Maintain Your Budget
After you’ve made your budget and
financial plan, make a commitment to stick to it as much as possible.
Reevaluate Your Budget as Needed
Life is always changing, and your budget
will undoubtedly change along with it. I recommend reevaluating your budget
every quarter or at least yearly.
Be Generous
It may sound crazy, especially if you
have extremely limited funds, but as many of you already know, it is truly
more blessed to give than it is to receive. And there are many ways to be
generous besides writing a check, even just sharing a meal with a neighbor
who’s under the weather can be more important than any amount of money they
could possibly have. You may feel you can't afford to do anything, but life
will surprise you.
So lets make our plans, stick to our
budgets, and keep our eyes and ears open for how we can always be generous…
that’s living a better life!
Click here if you missed Living Paycheck to Paycheck:
Part 1
Michelle Jones, author
of Frugal Family Recipes and Dealing with Debt, is dedicated to helping
families save money and live a better life. She's also a frugal mom of 4
and the Publishing Editor of Living a Better Life: The Free Money-Saving
Tips Ezine. Please visit
www.BetterBudgeting.com to sign up for your free subscription!
Copyright © by Michelle Jones. All rights reserved.
Reprinted with permission.
