A Budget That Really Works
by
Galia Gichon
Doesn’t it
sound refreshing? I often compare keeping a budget to dieting. There are so
many diets out there (Atkins, cabbage soup, South Beach) as many different
budgets. After more than 13 years experience, here is one that is easy to
follow and can work wonders for your cash flow. It can also be called “Back
to Basics” or starting over with a clean slate every week. Many of us have
gotten used to paying with our credit cards, and we really don’t know where
our cash goes. As a result, we don’t have much left over at the end of the
month. Sound familiar?
Try living
on a weekly cash budget for the next two months. Cash ONLY. The key to
making it work is to come up with a set amount and sticking to it for the
week – NO MATTER WHAT! For example: you came up with $250 spending money
for the week. If you stick to it, it will change the way you look at
“budgets.” Plus you will have more money left over at the end of the month
and be motivated to do more with your money – like go on vacation! Here’s
how to get started:
First, come
up with your monthly income, after taxes. If you are self-employed,
estimate your average monthly income. Include any other income you might
receive (i.e. child support, investment income). Then come up with your
fixed expenses. These are the expenses you have to pay – no matter what!
These include: Rent or Mortgage, Home Equity Loans, Car Payments, Insurance
Premiums: Auto, Health, Home, Life/Long Term Care, Other Loans (student
loan, credit card, fixed loans), Taxes not withheld from pay, Utilities,
Water and Sewer, Telephone: Local, Long Distance and Mobile, Transportation:
Public/Transit, Gas, Taxis, Repairs, Childcare, Medical/Dental, Cable/
Internet Access and anything else that is a monthly expense that you have to
pay every month. Now what is left? For example, your monthly income is
$5,000, your fixed expenses are $3,000 and you are left with $2,000 a
month.
Here comes
the fun part because this is where you can see results for your hard-earned
money. Think about your goals (vacation, debt repayment, buying a home,
children’s college education). This is where that money comes in. You have
to put it away before you spend it on flexible items. Write down what you
think you would realistically like to save. You can always change it later
on. For our example, we will assume $500 a month. You then subtract that
from the $2,000 that is left. You now have $1,500 and divide it by 4 =
$375. This amount is now your weekly cash to live on. That includes food,
groceries, clothing, entertainment, personal care, taxis (above regular
transportation) and anything else that might be considered flexible. You
can spend it anyway you like. A few more tips to keep to this spending
plan:
- Whatever
you have in your wallet is what you are spending for the week. You need
to start thinking that when you run out of money in your wallet, you are
done spending for the week.
- The idea
is that you can still do the things you love, but you need to prioritize
them on a weekly basis. It is much easier keeping to a weekly cash
spending plan or budget than a monthly one.
- Go to
the ATM only once a week.
- If you
have a big purchase that week (i.e. groceries, hair cut), plan
accordingly and don’t eat out.
This might not work for you the first time you try
it. But, it will make you much more conscious of your spending. Don’t get
discouraged and keep at it. It will make a difference in your spending.
Galia Gichon is the Founder of Down-to-Earth
Finance, which offers Unbiased Financial Education. She has worked
with thousands of people, has an MBA in Finance and over 13 years financial
experience. Please visit
www.downtoearthfinance.com. You can
subscribe to her weekly e-mail newsletter for tips to add fun to your
finances, spending smarter and understanding investing at
DownToEarthFinance-on@zines.webvalence.
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