So the master minds in Washington worked together and got a deal done regarding the extension of the payroll tax, unemployment benefits and avoiding a fee cut for medicare doctors for the rest of the year. This is a nice extension which means your wages will be taxed at 4.2% rather than being raised to 6.2% which was the original payroll tax rate before the tax cut was put in place. You shouldn't changes in this area regarding your monthly salary. However, something to keep in mind is that this extension is going to cost ~$100 Billion and the government won't be enacting spending cuts in other areas, which the Republicans were pushing for, to fund this extension.
With that in mind, there is a chance that we could see higher fees somewhere else to compensate for this extension. Where might those fees come from, I don't know, but I think there are some things we can do as American citizens to help out. Here are some of my thoughts:
1. Pay down debt - Use this payroll tax cut to help pay down debt. If we as American citizens can figure out how we can pay down the debt that we owe, we can all help his economy get back on its feet. Let's think about this. If we pay off our debts whether it be credit card, mortgage, student loans, home equity, auto, or whatever, we will help pump money into the economy which allows the banks to lend more money. If more money is being lended, then that means more projects/work is available and so on. It is a cycle. This payroll tax cut is very nice but let's be wise with how we spend this extra money.
2. Use it wisely - This goes a long with my comment on debt but think about how you can use this money to help you afford the things you need rather than what you want. As you are budgeting, you must take care of your needs first and then the wants follow. If you are new to bugeting and have certain spending habits that cater more towards your wants, think about your situation and the needs that you have. I can promise that if you can meet your needs, you will begin on the path to meet your wants as well. It is a tough road but it can happen. Be wise and meet your needs first, that will help you as an individual and the country. Some ways to use this money wisely might be to save it for a rainy day, save for a major car repair that is coming up, use for your kids clothes or for something that you need that will help you grow and develop as an individual.
3. Use it with the end in mind - This is a concept that will help you achieve your goals. For example, you want to pay off your debt in 5 years. With the end in mind, you will know how much of this payroll tax money you need to save to pay off your debt in 5 years. If you have the end in mind, you will put yourself in a powerful position. This powerful position is you becoming a master of your funds rather than your funds mastering you.
These are just a couple of suggestions. I hope this payroll tax extension will help everyone with a little extra to help with their budget and put you in a stronger financial position as you use it wisely. Budget wisely to generate cash flow to generate a masterful position of your finances.
Sunday, February 19, 2012
Tuesday, February 7, 2012
Payroll Tax Increases...Appears Likely
Just a note to all, the payroll tax rate is scheduled to increase from 4.2% to 6.2% at the end of this month. This will affect ~160 million people unless the master minds in Washington can get their act together and figure something out. There is an article on CNN.com, here is the link http://www.cnn.com/2012/02/07/politics/payroll-tax-cut/index.html?npt=NP1 that provides an update on where these master minds are in the process of extending the payroll tax cut until the end of the year. It sounds like they are back at square one, that sounds familiar, and the democrats could be using it for leverage for this upcoming election to prove that when a bipartisan discussion occurs that an agreement doesn't actually happen. Whether this is true or not, I don't know, but if it is, then that is pretty low and ridiculous. There are ~160 million people out there, me being one of them, that could use the couple extra dollars a month that this payroll tax cut provides.
The truth is, most of us don't get special perks, which save them money, that these people in Washington get. What a government, let's make ~160 million people struggle a little bit more for just a little bit longer so an election can be won. Or let's just not act like professional and good standing citizens and make life just a little more difficult on Americans during a tough economic period. It isn't a big deal. Whether there is an election this year or not, the people in Washington said that they would fight for a strong recovery. I guess taking money from the hard working American is always the best route to take because they can't make a decision to cut funds in another way. Sometimes I wish they would just grow up and set priorities rather than submit to childish acts. If this payroll tax increases, it is hard to see how that would help in any election except if you are the republican nominee, in this case, and now they have leverage.
At any rate, manage your budgets accordingly and prepare yourself for an increase in the payroll tax and expect a pay cut as well. Hopefully this is just blah and something positive happens but if not, atleast you are prepared to manage this negative change. Cheers to budgeting!
The truth is, most of us don't get special perks, which save them money, that these people in Washington get. What a government, let's make ~160 million people struggle a little bit more for just a little bit longer so an election can be won. Or let's just not act like professional and good standing citizens and make life just a little more difficult on Americans during a tough economic period. It isn't a big deal. Whether there is an election this year or not, the people in Washington said that they would fight for a strong recovery. I guess taking money from the hard working American is always the best route to take because they can't make a decision to cut funds in another way. Sometimes I wish they would just grow up and set priorities rather than submit to childish acts. If this payroll tax increases, it is hard to see how that would help in any election except if you are the republican nominee, in this case, and now they have leverage.
At any rate, manage your budgets accordingly and prepare yourself for an increase in the payroll tax and expect a pay cut as well. Hopefully this is just blah and something positive happens but if not, atleast you are prepared to manage this negative change. Cheers to budgeting!
Sunday, February 5, 2012
Two Types of Costs within Budgeting
When dealing with budgets, there are two main types of expenses that one incurs. Those expense types are fixed and variable. What is the difference between the two, you might ask?
A fixed expense is an expense that is constant and does not change. Each month you will pay the same amount. For example, your mortgage/rent payment is a fixed expense. Let's say your mortgage is $900/month. You will pay $900 a month no matter how much income you make or how well you control your other expenses. You will always pay this $900/month until your mortgage is paid off or your until rent leases terminates. Here is a list of some other fixed expenses you might see in your budget:
1. Homeowners Association Fee
2. Home/Rental/Car Insurance
3. Student Loans
4. Car Payment
5. Life Insurance
6. Cable/Phone/Internet Bill
A variable expense is an expense that is not constant or one that varies/changes on a monthly basis. These are the expenses that you can manage/control on a monthly basis. If you are seeing you are paying too much on electricity, try to turn off the lights more often or if your out-to-eat expenses are too high, discipline yourself and making going out-to-eat a big deal and a special outing. An example of a variable expense would be your water bill. The amount you pay each month for your water depends on how much water you use throughout the month. If you use 50 gallons of water one month and 70 gallons of water another month, the amount you pay to the water company will be dependent upon the gallons used. Here is a list of some other variable expenses you might see in you budget:
1. Groceries
2. Electrical Bill
3. Utility Gas Bill
4. Amount you buy for clothes
5. Entertainment
6. Out-to-Eat
A fixed expense is an expense that is constant and does not change. Each month you will pay the same amount. For example, your mortgage/rent payment is a fixed expense. Let's say your mortgage is $900/month. You will pay $900 a month no matter how much income you make or how well you control your other expenses. You will always pay this $900/month until your mortgage is paid off or your until rent leases terminates. Here is a list of some other fixed expenses you might see in your budget:
1. Homeowners Association Fee
2. Home/Rental/Car Insurance
3. Student Loans
4. Car Payment
5. Life Insurance
6. Cable/Phone/Internet Bill
A variable expense is an expense that is not constant or one that varies/changes on a monthly basis. These are the expenses that you can manage/control on a monthly basis. If you are seeing you are paying too much on electricity, try to turn off the lights more often or if your out-to-eat expenses are too high, discipline yourself and making going out-to-eat a big deal and a special outing. An example of a variable expense would be your water bill. The amount you pay each month for your water depends on how much water you use throughout the month. If you use 50 gallons of water one month and 70 gallons of water another month, the amount you pay to the water company will be dependent upon the gallons used. Here is a list of some other variable expenses you might see in you budget:
1. Groceries
2. Electrical Bill
3. Utility Gas Bill
4. Amount you buy for clothes
5. Entertainment
6. Out-to-Eat
Thursday, February 2, 2012
New Home Loan Refinancing Plan...In The Works?
President Obama has come out with his new home loan refinancing plan regarding homeowners and the ability to refinance their homes without a certain % of equity. Now before you get all excited about this new plan, remember it still has to pass the senate and the house and it needs to be funded, so there are a couple of ifs to say the least. Here are a couple of highlights:
1. Cost will be between $5 and $10 billion; funded is projected to come in the form of a fee to the large banks.
2. Program will help borrowers with private, non-government bank loans
3. Must be current on your mortgage payments in the last 6 months and no more than 1 late payment during the preceding 6 months
4. Have a credit score of 580 or higher
5. Mortgage balance also cannot exceed the loan limits for FHA-insured loans
6. Must own and occupy the home covered by the loan
If you qualify, this could really help out your budget. Remember, we are targeting our mortgage payment to be less than 28% of our gross income. This will help that out. Imagine how much you could save if you dropped your interest rate from 6% to ~4%. I am sure there is good savings there that you could use to help pay off your debts, save for retirement, kids college, a nice vacation, or maybe a little something for yourself.
This sounds like a great program...if it passes. You need to remember that to fund it, it is proposed to charge the large banks. If the banks have to pay an additional fee, then it is likely that those banks will pass that fee onto you and I as the consumer. If this were to pass, watch out for those fees because if you are not careful, they can add up. This is certain but I just want to give you the heads up. A link to the article is below. I found the article on CNN.com/money. Please read the article as it will help educate you more regarding this proposal.
http://money.cnn.com/2012/02/01/real_estate/Obama_refinancing_plan/index.htm?iid=H_PF_News
1. Cost will be between $5 and $10 billion; funded is projected to come in the form of a fee to the large banks.
2. Program will help borrowers with private, non-government bank loans
3. Must be current on your mortgage payments in the last 6 months and no more than 1 late payment during the preceding 6 months
4. Have a credit score of 580 or higher
5. Mortgage balance also cannot exceed the loan limits for FHA-insured loans
6. Must own and occupy the home covered by the loan
If you qualify, this could really help out your budget. Remember, we are targeting our mortgage payment to be less than 28% of our gross income. This will help that out. Imagine how much you could save if you dropped your interest rate from 6% to ~4%. I am sure there is good savings there that you could use to help pay off your debts, save for retirement, kids college, a nice vacation, or maybe a little something for yourself.
This sounds like a great program...if it passes. You need to remember that to fund it, it is proposed to charge the large banks. If the banks have to pay an additional fee, then it is likely that those banks will pass that fee onto you and I as the consumer. If this were to pass, watch out for those fees because if you are not careful, they can add up. This is certain but I just want to give you the heads up. A link to the article is below. I found the article on CNN.com/money. Please read the article as it will help educate you more regarding this proposal.
http://money.cnn.com/2012/02/01/real_estate/Obama_refinancing_plan/index.htm?iid=H_PF_News
Tuesday, January 24, 2012
Social Security Tax Increasing...Will that affect my budget?
A crucial part of budgeting is also watching the taxes that are taken out of your pay check. One such tax is the social security tax. Based on federal law, it is mandated that each employee pay a social security tax even though some of us may not see those funds. Anyway, the rate at which each employee is taxed is 4.2%. The rate of 4.2% is a lesser amount than what we have paid in prior years. I can't remember the year in which President Bush enacted his tax cuts but this is a reduced amount and is part of his work, which is nice. As of March 1, 2012, I believe, we are supposed to see this rate increase back up to its original rate of 6.2%.
As you budget keep this in mind because this rate will go up 2 percentage points and is taxed against your gross pay. So let's illustrate this increase.
This is real money that you will no longer be able to spend on yourself. Please incorporate this into your budget so you are relying on funds that aren't there. I don't know about you but I could certainly use and extra $83.33/month.
These funds are certainly needed by all so let's just cross our fingers and hope that the master minds in Washington will understand that we can no longer sacrifice our hard earned dollars for crazy spending bills. Remember, there is still hope that they could extend this tax break through the end of the year. If that is the case, then we can put this added worry on hold until 2013...more to come on this topic.
During the State of the Union address President Obama mentioned the fact that the government needs to pass the payroll tax/social security tax cut now and it extend for the rest of the year. Let's cross our fingers and hope that happens.
As you budget keep this in mind because this rate will go up 2 percentage points and is taxed against your gross pay. So let's illustrate this increase.
| Yearly Gross Pay Amount | $50,000 |
| Current Social Security Rate | 4.2% |
| Current Amount You Pay In Social Security Tax Per Year | $2,100 |
| Social Security Rate Beginning March 1, 2012 | 6.2% |
| Amount You Will Now Pay A Year in Social Security Tax | $3,100 |
| Amount of Income You Will Lose Per Year With This Increase | $1,000 |
| Monthly Amount You Will Lose | $83.33 |
This is real money that you will no longer be able to spend on yourself. Please incorporate this into your budget so you are relying on funds that aren't there. I don't know about you but I could certainly use and extra $83.33/month.
These funds are certainly needed by all so let's just cross our fingers and hope that the master minds in Washington will understand that we can no longer sacrifice our hard earned dollars for crazy spending bills. Remember, there is still hope that they could extend this tax break through the end of the year. If that is the case, then we can put this added worry on hold until 2013...more to come on this topic.
During the State of the Union address President Obama mentioned the fact that the government needs to pass the payroll tax/social security tax cut now and it extend for the rest of the year. Let's cross our fingers and hope that happens.
Wednesday, January 18, 2012
Beware of Budget Complacency
The process of beginning to budget is a big change because it isn’t a habit and it takes time. Nowadays, I believe that we as Americans want everything quick and in front of us in the least amount of time. That is a major reason why I think that budgeting is a process that begins as a New Year’s resolution or when times are tough and we are in need of financial help. Now that you have begun the budgeting process, don’t let up. The steps that I have outlined really help you become involved in how you are spending your money. When I talked about tracking your expenses, I talked about going through each of your receipts and tracking the costs based on the expense categories that you have set up. I highlight this because it helps you really understand where your money is going. It is time consuming, no argument there. If this is the approach you are taking, stick with it. It is said that if you can do something for 21 straight days then it becomes a habit. Make it happen!
If you are electing to budget with budgeting software such as Microsoft Money, Quicken, You Need a Budget, or some other software, then stick with it. You may not be as involved in how all your money is spent but at least you will know where your money is going. Don’t become complacent even if the process is easy. Most of your information can be downloaded from your online bank account or your credit cards but don’t let that be a reason to not regularly visit your budget.
Remember, Remember if you aren’t aware of how you are spending your money, you could be in for a rude awakening one day…potentially that rainy day when a little extra cash would come in handy!
Monday, January 9, 2012
Analyzing Your Budget
I believe this to be a very important part of the process. The analysis part of the process is where you can determine whether you are spending your money on your wants or your needs. This would be a good time to get your list of needs and wants and evaluate your spending habits. There are a couple ways you can do this. I will offer a couple of suggestions.
1. Graph your total monthly costs - This will give you an idea as to how well you are budgeting through out the year based on your spending needs/habits. For example, you may find that you are spending a lot of money in November and December for Christmas or you may notice more costs in June or July because of summer vacations. This is good information as this will help you plan your spending and help you be creative in budgeting in the other months so you have enough money to cover theses "wants" or "fun" expenses.
2. Graph your spending by category - I like this graph because it tells you how much in which areas you are spending your money. On this graph, you want to probably graph this by total dollars and by percentages of your total expenses. The percentages usually shine a different light on the process and help you better understand what is going on with your finances.
3. Amount you are paying yourself - Keep an eye on how much you are paying yourself. This area is really why we work so hard and to retire and retire hopefully early...right? Make sure you aren't dipping into this fun to pay other people. There has to be some relief for all your hard work. Don't let that hard work go towards paying someone else. Ensure you have enough to always pay yourself!
4. How much is your Mortgage/Rent payment eating into your budget? - This is a cost that I will discuss more later but you want to make sure you have control over your mortgage/rent payment. Make sure you aren't spending more than 28% of your gross income. This isn't something that you can change monthly so when you do lock down your payment amount, make sure you are paying less than 28% of your gross income. I guess you could change this after your payments are locked in by bringing in more money. If bringing in more money doesn't work out then in order to stay within your means I would suggest being creative with your budget. By creative I mean go through each of your categories and determine where you are spending money that may seem frivolous or you feel you are just spending too much. For example, if you are spending $400/month on entertainment then maybe you need to figure out a way to spend less in that category. Or if you are going out to eat so much that you could really be saving more if you went to the grocery store more often and cook more meals at home.
There are ratios that you can use to analyze your finances as well. Let's dive in:
1. Housing Ratio - This ratio is very nice because it give you a high level look at how well your house payment is controlling your budget. This formula can be used for both homeowners and those renting. If you are a home owner, incorporate your entire mortgage payment (principle, interest, mortgage insurance (if applicable) & property taxes). If you are renting, then only use the amount you are paying for rent. Let's say you are a homeowner and pay $1,000 a month for your mortgage. Included in that $1,000 is your principle, interest, mortgage insurance & property taxes. You have an annual salary of $60,000 so your gross monthly salary would be $5,000. The output of the ratio looks something like this:
Monthly Mortgage Payment
Housing Ratio = Gross Monthly Salary
$1,000
Housing Ratio = $5,000 = 20%
Based on this ratio, you would be in pretty good shape. Remember, you want to keep this percent south of the 28%.
2. Savings Ratio - This ratio is one that I think gets overlooked by most people. It is ratio that I believe many people think will work out on itself. This is the percentage of money you have left over at the end of the month that you can use on yourself. This is the money that will go towards a nice vacation, retirement, a new car, a new home, money to put away for that rainy day, a nice night on the town, etc. I have read books and heard financial advisors specify that this percentage should be 10% or higher if possible. Remember, Remember that you are working to pay yourself not to pay your debtors and everyone else. The ratio is pretty easy to calculate:
Net Income (amt. @ end of mth)
Saving Ratio = Net Pay (amt. you take home after taxes, insurance, etc.)
Let's run a scenario. You bring home $4,000 after taxes, insurance, etc. You have net income of $450 at the end of the month.
$450
Savings Ratio = $4,000 = 11.25%
This is where you want to be at and then some. Keep an eye on this ratio and figure out how you can optimize it.
Use this ratio to help manage your expenses and when putting together your budget. As you become familiar with this ratio you can be creative with your budget. With this ratio you can:
A. Run What-If Scenarios - put in different amounts for your income or other expense categories to get an idea of how much you would need to make to save at least 10% at the end of each month
B. Salary Negotiation - I will get into salary talk later but as you put in different salary amounts, you can get a taste for how much you need to earn to save that magical 10% or more on a monthly basis.
C. Debt Reduction - If you are carrying any type of debt: student loans, credit cards, car, home, frivious purchases, anything, run a scenario to see how much you would be making if you didn't have to pay off your debtors. In this scenario, I am suggesting you pay off your debts as fast as you can so you can have a strong credit score, pay as little interest as possible, and enjoy a "raise" as you will now have liberated yourself from financial bondage. Now once that debt is paid off, don't get back into debt. Be Wise and Spend Wisely!
The above scenarios work and they will give wonderful perspective into how much you can enjoy life while only working hard at work and eliminating the stress of paying off debt or spending your money unwisely.
3. Debt-to-Income Ratio - Many of you many be familiar with this ratio, especially if you own a home. This is a ratio that lenders use to determine whether or not you qualify for a mortgage. This ratio takes all your monthly debt payments and determines how much of your income is going towards paying down your debt. This is one percentage you want to be low. This will take your monthly credit card payments, student loan payments, car payments, mortgage/rent payments, etc. Let's run a scenario. You have a $100 student loan payment, $350 car payment, $1,000 mortgage payment, and a $600 credit card payment. Your total monthly debt payments are $2,050. You bring home $5,000 a month. What is your debt-to-income ratio:
Total Mthly Debt Pmt's
Debt-to-Income = Monthly Gross Pay (Amt. before taxes, insurance, etc.)
$2,050
Debt-to-Income = $5,000 = 41.00%
It is said that with a debt-to-income of over 55%, you shouldn't qualify for a mortgage. Keep an eye on this as well. Don't drown yourself in debt. It is good to have some breathing room.
Cheers to budgeting and owning your finances!
1. Graph your total monthly costs - This will give you an idea as to how well you are budgeting through out the year based on your spending needs/habits. For example, you may find that you are spending a lot of money in November and December for Christmas or you may notice more costs in June or July because of summer vacations. This is good information as this will help you plan your spending and help you be creative in budgeting in the other months so you have enough money to cover theses "wants" or "fun" expenses.
2. Graph your spending by category - I like this graph because it tells you how much in which areas you are spending your money. On this graph, you want to probably graph this by total dollars and by percentages of your total expenses. The percentages usually shine a different light on the process and help you better understand what is going on with your finances.
3. Amount you are paying yourself - Keep an eye on how much you are paying yourself. This area is really why we work so hard and to retire and retire hopefully early...right? Make sure you aren't dipping into this fun to pay other people. There has to be some relief for all your hard work. Don't let that hard work go towards paying someone else. Ensure you have enough to always pay yourself!
4. How much is your Mortgage/Rent payment eating into your budget? - This is a cost that I will discuss more later but you want to make sure you have control over your mortgage/rent payment. Make sure you aren't spending more than 28% of your gross income. This isn't something that you can change monthly so when you do lock down your payment amount, make sure you are paying less than 28% of your gross income. I guess you could change this after your payments are locked in by bringing in more money. If bringing in more money doesn't work out then in order to stay within your means I would suggest being creative with your budget. By creative I mean go through each of your categories and determine where you are spending money that may seem frivolous or you feel you are just spending too much. For example, if you are spending $400/month on entertainment then maybe you need to figure out a way to spend less in that category. Or if you are going out to eat so much that you could really be saving more if you went to the grocery store more often and cook more meals at home.
There are ratios that you can use to analyze your finances as well. Let's dive in:
1. Housing Ratio - This ratio is very nice because it give you a high level look at how well your house payment is controlling your budget. This formula can be used for both homeowners and those renting. If you are a home owner, incorporate your entire mortgage payment (principle, interest, mortgage insurance (if applicable) & property taxes). If you are renting, then only use the amount you are paying for rent. Let's say you are a homeowner and pay $1,000 a month for your mortgage. Included in that $1,000 is your principle, interest, mortgage insurance & property taxes. You have an annual salary of $60,000 so your gross monthly salary would be $5,000. The output of the ratio looks something like this:
Monthly Mortgage Payment
Housing Ratio = Gross Monthly Salary
$1,000
Housing Ratio = $5,000 = 20%
Based on this ratio, you would be in pretty good shape. Remember, you want to keep this percent south of the 28%.
2. Savings Ratio - This ratio is one that I think gets overlooked by most people. It is ratio that I believe many people think will work out on itself. This is the percentage of money you have left over at the end of the month that you can use on yourself. This is the money that will go towards a nice vacation, retirement, a new car, a new home, money to put away for that rainy day, a nice night on the town, etc. I have read books and heard financial advisors specify that this percentage should be 10% or higher if possible. Remember, Remember that you are working to pay yourself not to pay your debtors and everyone else. The ratio is pretty easy to calculate:
Net Income (amt. @ end of mth)
Saving Ratio = Net Pay (amt. you take home after taxes, insurance, etc.)
Let's run a scenario. You bring home $4,000 after taxes, insurance, etc. You have net income of $450 at the end of the month.
$450
Savings Ratio = $4,000 = 11.25%
This is where you want to be at and then some. Keep an eye on this ratio and figure out how you can optimize it.
Use this ratio to help manage your expenses and when putting together your budget. As you become familiar with this ratio you can be creative with your budget. With this ratio you can:
A. Run What-If Scenarios - put in different amounts for your income or other expense categories to get an idea of how much you would need to make to save at least 10% at the end of each month
B. Salary Negotiation - I will get into salary talk later but as you put in different salary amounts, you can get a taste for how much you need to earn to save that magical 10% or more on a monthly basis.
C. Debt Reduction - If you are carrying any type of debt: student loans, credit cards, car, home, frivious purchases, anything, run a scenario to see how much you would be making if you didn't have to pay off your debtors. In this scenario, I am suggesting you pay off your debts as fast as you can so you can have a strong credit score, pay as little interest as possible, and enjoy a "raise" as you will now have liberated yourself from financial bondage. Now once that debt is paid off, don't get back into debt. Be Wise and Spend Wisely!
The above scenarios work and they will give wonderful perspective into how much you can enjoy life while only working hard at work and eliminating the stress of paying off debt or spending your money unwisely.
3. Debt-to-Income Ratio - Many of you many be familiar with this ratio, especially if you own a home. This is a ratio that lenders use to determine whether or not you qualify for a mortgage. This ratio takes all your monthly debt payments and determines how much of your income is going towards paying down your debt. This is one percentage you want to be low. This will take your monthly credit card payments, student loan payments, car payments, mortgage/rent payments, etc. Let's run a scenario. You have a $100 student loan payment, $350 car payment, $1,000 mortgage payment, and a $600 credit card payment. Your total monthly debt payments are $2,050. You bring home $5,000 a month. What is your debt-to-income ratio:
Total Mthly Debt Pmt's
Debt-to-Income = Monthly Gross Pay (Amt. before taxes, insurance, etc.)
$2,050
Debt-to-Income = $5,000 = 41.00%
It is said that with a debt-to-income of over 55%, you shouldn't qualify for a mortgage. Keep an eye on this as well. Don't drown yourself in debt. It is good to have some breathing room.
Cheers to budgeting and owning your finances!
Saturday, January 7, 2012
Tracking your actual costs
With your first pass of your budget in place, now lets start tracking your actual income and expenses. There is no right way to do this. Try to find a way that is easy for you. Some people like to be very detailed oriented and others maybe not so much. I believe that no matter how you track your income and expenses, make sure you are consistent. If you are very detailed and separate out your groceries, household items, fuel, etc. then make sure you do that every month. If you are consistent, then you will get a very good picture as to how much your are spending and in which categories.
If you are someone who likes to be detailed but just don't have the time, there are ways to achieve this. There is software available to help make this easy. The popular types of software include QuickBooks, Quicken, and Microsoft Money. For example, if you have a version of the software that I mentioned and have a major credit card, it is very likely that you could download your statements into the software. These types of software also have the capapbility of downloading your bank statement from your bank account. There may be a fee for this functionality but it is very convenient. This is an easy way to understand your spending habits and allows you analyze your cash outflows.
Using this software is very nice, however, if you don't heavily use a credit card or are working to limit your credit card usage, here are a couple more suggestions:
1. Envelope Method - Take a series of envelopes and label them with your major expenses such as groceries, fuel, eating out, entertainment, household expenditures, etc. At the beginning of each month, with cash from your bank account and put in the budgeted amounts into each envelope. This is how much money you have for the month and once the money is gone, you can't spend any more cash.
2. Bank Reconciliation Method - Reconcile your bank account with your monthly habits. On a monthly basis, reconcile your check book to your bank statement. This will give you a running total as to how much money you have in your checking account. Make sure you also track your expenses based on your budget so you don't over spend.
3. Excel Method - If you like working in excel, this could be a very convenient method. I have created an excel budgeting template that you are welcomed to use. You can customize it however you would like. With the template that I have created, simply input your budget and track your expenses. There are formulas in place to track how well your actuals compare to your monthly budgeted amounts and how well you are trending for the year. This is will tell you exactly how much you have leftover on a monthly basis.
If you are someone who likes to be detailed but just don't have the time, there are ways to achieve this. There is software available to help make this easy. The popular types of software include QuickBooks, Quicken, and Microsoft Money. For example, if you have a version of the software that I mentioned and have a major credit card, it is very likely that you could download your statements into the software. These types of software also have the capapbility of downloading your bank statement from your bank account. There may be a fee for this functionality but it is very convenient. This is an easy way to understand your spending habits and allows you analyze your cash outflows.
Using this software is very nice, however, if you don't heavily use a credit card or are working to limit your credit card usage, here are a couple more suggestions:
1. Envelope Method - Take a series of envelopes and label them with your major expenses such as groceries, fuel, eating out, entertainment, household expenditures, etc. At the beginning of each month, with cash from your bank account and put in the budgeted amounts into each envelope. This is how much money you have for the month and once the money is gone, you can't spend any more cash.
2. Bank Reconciliation Method - Reconcile your bank account with your monthly habits. On a monthly basis, reconcile your check book to your bank statement. This will give you a running total as to how much money you have in your checking account. Make sure you also track your expenses based on your budget so you don't over spend.
3. Excel Method - If you like working in excel, this could be a very convenient method. I have created an excel budgeting template that you are welcomed to use. You can customize it however you would like. With the template that I have created, simply input your budget and track your expenses. There are formulas in place to track how well your actuals compare to your monthly budgeted amounts and how well you are trending for the year. This is will tell you exactly how much you have leftover on a monthly basis.
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