Are you making these budget mistakes?

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1. Not making a budget

Do you ever feel like you don’t know where you money is going? A budget can help you do that. The first time you make a budget, it’ll take you about an hour. Now my budget takes me about 10 minutes. Most things don’t change month-to-month so there is very little that changes each month. Once you work out the kinks, creating a new budget is pretty quick. Is financial security worth an hour a month? You could do your budget while watching TV.

2. Making a budget but not living by it

When you make a budget and stick it in a drawer, you might as well not make one at all. You just wasted 10 minutes of your life. Managing your budget doesn’t have to take long. I spend about 15 minutes per week updating my check register and paying bills that are not set up automatically. I have a spreadsheet set up in Google spreadsheets that I use as my check register so I can access it from anywhere.

3. Not having a goal

It’s extremely difficult to stay on budget if you don’t have a goal. Set a goal. It could get getting out of debt, saving an emergency fund, saving for retirement, saving for a car or a vacation. Whatever your goal is, get it down on paper. Put it on your wall. Keep that goal in the front of your mind. It makes it so much easier to stick to a plan.

4. Not working with your spouse

When we got married, the official said, “And now you are one.” We went from “his” and “hers” to “ours”. We made decisions together. If you can’t share common dreams and goals, how can you develop a plan to get there? Don’t start with the budget. Start by discussing what you want your life to look like. Once you agree on that, it’s easier to develop a plan to get there, together.

5. Planning for tomorrow when you can’t survive today

I see this all too often and it frustrates the crap out of me: people who are saving for retirement or purchasing company stock but can’t pay their bills. The argument I always get is “well I’ll need money for retirement!” You bet your life you will because you are going to need it to pay off all that debt you are accumulating today! If you take a few years off from retirement saving to get your mess cleaned up, you’ll easily be able to put 15% of your income into retirement each year. You’ll free up cash flow and end up with more money in the end. Don’t cut off your nose to spite your face!

6. Creating a budget so tight you go insane

This is often the one that kills budgeting for most people. The reason that people think budgets are restrictive, terrible, horrible, no good, very bad things is because they make their budgets that way. How do I know that? Because my husband and I did that when we first started. Our budget was so tight, after a few months we completely fell off the deep end and bought anything we could get our hands on. I’m talking stupid with zeros on it. Budget yourself some BLOW money. Remember that you make this budget. You can put what you want in it. Don’t build it the way I think you should or the way someone else thinks you should. You need to build your budget the you can live with it. The first goal is to track your money.

7. Trying to do too much at once

I mentioned goals earlier. Some people have lots of goals. Saving for retirement while trying to get out of debt and save for a new car, while also trying to buy a house will get you nowhere. Pick a goal. Stick with that goal until you accomplish it, then pick the next goal. Rinse, repeat as needed.

8. Trying to create a one-size-fits-every-month budget

When we first started budgeting, we thought we could make one budget and then reuse it every month. That did not work. Things change. Life changes. Budgets should to. I start with the previous budget and update it for the current month. I add in the actual utilities for the month and add any items that might come up in that particular month, like the quarterly water bill or semiannual auto insurance payments. There are also things like weddings, showers and birthdays that might need to be added to the budget. Budgets are also flexible. If something happens during the month, sit down with your budget and adjust it. Decide where the extra money will come from. Remember, this is YOUR budget.

9. Believing that the only way to work your budget is to decrease spending.

Jeff and I have cut our budget a lot. We don’t have cable TV. We keep the heat down. If I cut the grocery budget anymore, Jeff’s going to start an anti-vegetarian protest. We realized that if we want to pay things off faster, we needed to increase our income. We both have side businesses that bring in extra money. Think about what you can do to make some extra cash. Walk dogs, mow lawns, shovel snow, do repairs for folks. Think about the skills you have and see how you can apply them to make extra cash.

10. Believing that it can’t be done

When I asked readers the first word or phrase that came to mind when they heard the word “budget”, many people responded with various forms of hopelessness. I remember that feeling. I remember thinking we could never get out of debt. I remember thinking we would be broke forever. I remember thinking that payments were normal and someday they would just go away, that credit cards were a way of life. I also remember how it felt when we built our thousand dollar emergency fund. It was like a 2-ton weight had been lifted. We made a lot less money then and that was a huge accomplishment. Then we paid off the first credit card. It wasn’t huge but that little win helped propel us to where we are today. Will it be easy? Probably not. But when the stress of payments is stronger than your desire for stuff, you can get there. We still have a long way to go in our debt-free journey and it’s not always easy, but we have so much more peace now. The financial stress is gone. We have a plan and we live by it.

What mistakes did I miss? Add your own in the comments.

My little cash experiment

I’ll start by saying that I really want to go on vacation. A real vacation. Over the past twelve years, Jeff and I have gone on one real vacation. That was our wedding in Vegas. All of our other vacations have been local, a family visit or a few days for an event. I decided that this year, I would start saving for a major vacation. I want to take a cruise to Italy. I’ve always wanted to see Italy and I’ve been looking at the cruises that visit the country. It looks like a lovely idea and it’s a lot of money.

Since we are still paying down debt, I did not want to divert any of those funds for the trip. I needed to find a new way to cut back my spending to save for this. In January, I started using cash again. I’ve done this periodically through the years to help tame my spending but always went back to the debt card. This time, I put my debt card away (aka one of the cats stole it) and have been using cash for the past month.

Each time we get paid, I take out a certain amount for gas, groceries, eating out and other things we’ll need for the next two weeks. I based this amount on what we’ve been spending in the past using the debit card. I can only use the cash I have. Once it’s gone, I’m done spending. When I’m about to take out money for the next two weeks, I count up how much money I have left. I deduct that amount from what I take out of the bank, bringing my total back to the fixed amount I should start my two weeks with. The money I saved goes into my vacation account.

In the first month, I saved $97.00. I’ve got a few days left until we get paid again and I’ve still got about $60 left. I’m going to need a few things this week and gas but I’m hoping to still put $30 in the account. I always tend to spend more at the beginning of the month, since that’s when we make the big trip to the warehouse club to stock up on cat food, litter and other things we need for the month. The majority of the money I put in the savings account last month was from the 2nd half of the month. I would be thrilled to put $30 in for the first 2 weeks.

I know $100 doesn’t seem like a lot, but when your total biweekly allotment is $300, I cut my discretionary spending for a four week period my over 16%. Not too shabby. It’s funny when you are holding something in your hand and realize that this could be money for Italy. I’ve put a lot of things back in the past month.

Credit and debit card issuers state that the average person spends 8-10% more when using plastic. I can’t tell you how many times I’ve made a purchase and not even known how much I spent. I know I had the money to cover it, so who cares right?

I know that if I would have had my debit card on me, I would have purchased a new vacuum last month. Mine needs a ton of repairs and it would be more cost effective to get a new one. Instead, I bought an $8 broom and dust pan. I’ve got all hardwood floors and it actually takes me less time to sweep, plus the broom gets into all the crevices in the floor. Oh how we think about things when we’ve got greenbacks in the wallet and a cruise on the mind!

What a long strange summer it’s been….

Look! I’m alive! Really! Well, kinda. Maybe.  I think the jury is still out on that one.

I must say, I have tremendous respect for those of you who blog everyday. I really don’t know how you do it. Every time I think I might have time to get a post in, the phone rings. It’s always my life at the other end of the line, dead set on pulling me in another direction.

So far, this summer has proven to be a hectic one. I’ve been teaching four days a week since the spring semester ended. As I write this, my students are taking an exam. My only “day off” has been Fridays, which I generally use to meet with clients and get to other things I don’t have time for during the week.

After months of pain, limited mobility, doctor’s appointments and physical therapy (which was a complete waste of my time), I finally have a diagnosis on my hip pain. It’s nothing serious and now that we know what’s wrong with it, I’m with a new physical therapist who is helping me fix it. I’m still stiff as a board and things are still painful, but I can see the light at the end of the tunnel.

You probably know if you live in most of America, that it’s been hot as hell for the past few… well, months now I guess. We had a very hot and humid June and July is not really getting much better. We got the electricity bill for last month and I almost fainted. My utility bills are still less expensive in the summer than the winter though, so that made me feel a little better. I’ve programmed the thermostat to raise the temperature during the day to cut back in costs. We’ll see how that goes.

So with the schedule of classes to teach, physical therapy appointments and clients, I haven’t really had a lot of time to spend money. Keeping busy is a great way to be frugal. No time for shopping, except grocery shopping. Luckily most afternoons I have enough time to make a lovely dinner. It’s been too hot for homemade bread though, which Jeff and I miss quite a bit.

So things with the budget are going well. We are paying things down. I’m developing a plan for the fall since my income will increase greatly with the full-time teaching position. We are going very intense for the next 9 months to pay a lot of things off. We are going to be in a great financial position by May, Lord willing.

What I look forward to most, is August. I’ll have almost an entire month with no classes. It’ll be time to take some time to relax, get prepared for fall and just enjoy a bit of summer.

What are you doing this summer? Do you find you spend more or less money in the summer?

Do you have an income issue or a spending issue?

When coming up with your financial plan, remember there are two sides of the equation: your income and your expenses. We need to look at both of these.

The first thing you need to do is look at your spending.You will have a very difficult time getting ahead if you don’t know where your money goes. Don’t let your money control you; you need to control it.

Now is a good time to look at your spending since we are at the end of August and we have an entire recent month worth of spending to look at. How did you spend money this month?  Checking account? Credit cards? Taking cash out of savings? If you do all of your spending with a debit card and/or credit card, this will be a lot easier to do. If you spend cash, then you’ll need to start this process tomorrow. If using cash, you’ll need to get a small notebook or keep your cash in an envelope and write down everything you spend money on as you spend it for a month. We need to know where the money goes. After you do that for a month, your assignment looks a lot like the card spenders.

Pull your credit card and bank statements for August. You need all your spending from August 1 to August 31. Look at each transaction and put it into a category:

Housing
Rent/First Mortgage
Second Mortgage
Housing Repairs/Condo Fees

Utilities
Electricity
Gas/Oil
Water
Cable/Internet
Phone
Cell Phone
Trash

Food
Groceries
Eating Out

Transportation
Car Payment 1
Car Payment 2
Gasoline
Auto Repairs
Car Insurance

Clothing

Medical/Health
Health Insurance
Medical Copays

Personal
Life Insurance
Disability Insurance
Child Care

Entertainment/Recreation

Donations

Debt (List each debt separately)

Other (See if there are any categories that pop out at you within this “Other” umbrella)

Once you get all this down on paper, look at what your spending. Is there fat in your spending? Are you spending more than 15% of your take home income on food? Do you spend a lot on recreation? Take a look at all your spending. What jumps out at you?

If you are already on a program, what were the items that jumped out at you when you first looked at your spending? For me, I think it was how much we spent eating out. We never spent a lot on groceries but we had times when we’d eat out three days in a row. Cutting that out was huge. It probably saves us $150 a month.

Tomorrow, the income issue.

Quicktip: Managing your spending, get a notebook

If you need an easy way to track your spending, get a small pocket notebook. Have one page for each of your spending categories. Every time you purchase something, write it on the corresponding page. This is a great way to eliminate receipts while still having a record. When you allocate money from your paycheck into that account, you can also write that into the notebook, so you can track your ongoing balance.