Many people avoid the word “budget.” They experience feelings of restriction and denial when they think about creating a budget. If this feels familiar to you, a shift in mindset is necessary. A budget is nothing more than a system to control your money instead of it controlling you. That’s it. It’s a tool for you to make sure your money is going where you want it to go. It’s like the FDA’s food pyramid for your money.
With the food pyramid you know you’re allotted a certain number of calories each day to maintain a healthy weight, and those calories need to be divided up into the food groups. A budget is the same thing. You’re allotted a monthly salary and that salary needs to be divided up into your priority expenses.
Find a budgeting tool that you’ll actually use. If you’re a paper and pen person, then create or download a budget template. If you like to use software applications, then find a good one online. Your bank or credit card company may have a budgeting tool you can use for free. Or find a great app that you like; Mint.com is a common favorite.
The first step when creating a budget is to make a list of your expenses. Because you’re saving for retirement and because it’s a priority, that expense needs to go near the top of the list. You know how much you need to save each year to reach your goal.
Divide those annual savings by 12 months and you know how much you need to save each month. For example, if you’re saving $5000 a year then that’s $416 each month. Work through your budget, making sure that you leave a little for an emergency fund and for discretionary spending.
The next step and one that makes sticking to your budget much easier is to auto- mate as much as possible. Make transfers from your checking account into your IRA savings account an automatic monthly transfer. That way you make sure that your savings is taken care of before you spend any money.
You might find as you’re working through your budget that your paycheck isn’t going to cover your expenses like you’d hoped. Or maybe you’re left with less discretionary spending than you’d like. In the next section, we’ll take a look at some easy and fun money-saving tips so you can tighten your budget if needed in order to save more, while still enjoying your life.
The little habits you’ve developed over time have a significant impact on your bud- get. There are probably a few things that you can identify immediately that will save you anywhere from $20 to several hundred dollars a month. While you probably know that you can downsize your home and your car, it’s the small things that add up. Let’s look at some of the most common little things that impact your monthly budget.
Coffee – The daily run to the coffee shop costs you about $150 a month. Con- sider investing in a good coffee machine at home. You can buy amazing gourmet coffee at your local market. Invest in a good grinder if you like fresh ground. After the initial investment in the coffee machine and grinder, you’ll save about $120 a month or more. Gourmet beans cost about $15 a bag; you can, of course, buy pre-ground non-gourmet coffee and that costs around $8 a bag. That savings on coffee can be put directly into your retirement savings account, or it can be the discretionary in- come that your budget may be
Lunch with Co-Workers – Your daily trip out of the office may be some- thing that you look forward to. However, you don’t have to eat out to get out of the office. It’s easy to spend $5 to $10 a day on lunches. That’s a minimum of $100 a month if you only eat fast food. If you head to a sit-down restaurant, then you’re looking at savings of $300 or more. Start taking your lunch four days a week. Walk during your lunch break or head to a park to eat your lunch. Once a week you can treat yourself to a restaurant meal. You’ll save anywhere from $100 to $200 a month. You’ll probably lose weight too since you’re not eating fast food.
Grocery Shopping – Make a list when you go grocery shopping and only buy the items on your list. It’s too easy to impulse shop when you don’t have a list, and impulse shopping is expensive. Use coupons when you shop, buy from the cir- cular and according to what’s in season and consider going meatless at least once a week. Meat is often the most expensive item on the shopping
Clothing – Have you ever noticed that the stores are about three months ahead of the season? For example, the back to school season which usually include sweaters, and long pants begins in August. You don’t need those clothing items until late September or even October when the air begins to cool off. Wait a month or two and buy clothes off-season; you’ll save at least 20% off of your clothing bill and sometimes even more as retailers look to clear the old stock to make room for new items.
Phones – If you still have a landline, get rid of it. There’s no reason to spend money on two phones, and you probably wouldn’t dream of getting rid of your cell phone. Speaking of cell phones, consider getting rid of your contract and going with a prepaid phone. Prepaid phones are much cheaper, and you only pay when you use your phone and often your minutes and data roll
No Impulse Buys – Make a promise to yourself that you will only buy items that you absolutely love, and give yourself time to decide if you love it. If, after a week, you still love the item and believe it will add quality and value to your life, then go back and buy
Water – Start replacing soda and other bottled drinks with And not just any water, but water from your own tap. If you don’t like the taste of your tap water, invest in a filter for your faucet. Or buy a water bottle with a filter. It’s better for the environment, better for your health, and certainly better for your budget.
Your Car – Is your car payment killing your budget? Take a look at how much you spend on your car and don’t forget to look at insurance rates. Used cars are cheaper to insure, and they don’t come with a high monthly payment. Consider sell- ing your car if you have high monthly payments. Buy a used car and take good care of it. You’ll need to set aside some money for maintenance and repairs, but you’ll still come out ahead in the long
Free Entertainment – Finally, look for opportunities for free Enjoy free concerts, free festivals and check out free days at your local facilities.
Saving money isn’t difficult. The above are just a few common examples of ways to make seemingly small cutbacks that collectively can add up. There are probably
some clear-cut areas in your daily and weekly routine that can be reduced. It doesn’t mean you have to live without. You can treat yourself to the weekly coffee, lunch with friends, or splurge. A spending plan simply ensures that you have the freedom to make those decisions and still have enough in your account to meet your savings goals.