Budgeting Basics

Creating a budget is certainly not a walk in the park. Budgeting is an ongoing process and for most people, your budget has the possibility of changing from month to month. Your first try won’t be perfect, but don’t get discouraged.  As with most things in life, the more you practice budgeting, the better you’ll get. Once you figure out a flexible and successful process that works for you, you’ll be ready to go! Before you start, make sure you have 30 to 45 minutes set aside to work through each step. Let’s get started!

Income

Let’s begin at the most obvious place: your income. As we all know, your income is going to determine your budget, or in other words, how much money you have to spend. Your income can come from a variety of sources: your main day-to-day job, side jobs, child support, or even rental properties. It includes any source that brings money into your household each month. To start creating your budget, record the total amount of money that you’re making.

It’s important to take taxes into account, so make sure you’re recording your monetary income post-taxes. Some people refer to this as your “take home pay.” If you’re married, you’ll potentially be combining your incomes, so record them on the same budget.

Plenty of people are self-employed, which makes a budget all the more important. Your month-to-month income may be unpredictable depending on your business. If you have no reason to believe that your income will significantly drop in the upcoming month, average your monthly income for the last 3 months and use that for monthly income.

Expenses

The next part (that no one likes to think about) is what you spend your money on. Though expenses have their own categories, you always have regular “offenders” every month like your utilities, mortgage, or car payment. Sometimes utilities can sway a bit from month to month, but in general, they stay consistent.

You can’t forget about the other necessities like groceries, gas, clothing, household necessities, and other miscellaneous items. For your budget, it’s important to take into consideration everything that is going to require money. Depending on your family’s spending lifestyle, do you need to add or delete any categories? Think about this before moving on to the next step.

Set Priorities

Maybe you have student loans to pay off or maybe you and your spouse have a baby on the way. No matter what situation you find yourself in, your budget health relies on how well you prioritize.

  • Groceries: You have to feed you and your family, so first and foremost, set aside enough money for food. This should come before you worry about other bills. You may have to adjust it a bit depending on other expenses.
  • Utilities (Electric, Water): You have to keep the water running and the lights on, so these should take next priority. You might be asking, “isn’t my mortgage more important?” Well, living in a house without lights or water is no fun. The utility company won’t wait to turn your water and electric off if you don’t pay them. You tend to have slightly more leeway with your mortgage payment.
  • Mortgage or Rent: Don’t put this off unless it’s a dire emergency. Stay on top of it and don’t let it slip to the bottom of the pile!
  • Gas/Fuel: You have to put gas in the car to get to work, and if you can’t get to work, well, you’re not going to need a budget. (This is not a good thing!) Pay the monthly car payment and keep some gas in the tank. Tip: Be smart about your trips or try carpooling.
  • Clothing: You need to look appropriate at work and the kids need to be dressed for school, so if you’re only spending money on necessary clothing, that’s great! Don’t feel required to buy name brand clothing or accessories.

Once you’ve covered these 5 categories, you can move on to other sections of your budget that may vary from person to person. If you still have money left in your budget, you can include things like: Date Night, Cable, Family Entertainment, and other fun categories that should only be a part of your budget if you can afford to spend real money on them (not credit).

Final Touches

Many websites have free budgeting templates that will get you started. These make it pretty easy to figure out spending for monthly bills, since they don’t change much. You will have to make an estimate for gas and groceries. We suggest looking over your spending for those categories throughout the past couple of months and then finding an average. It doesn’t have to be perfect, but you do want the most accurate idea of where your money will need to go.

Once you’ve figured out your grand total of expenses, you want to make sure that it doesn’t add up to more than your total income. If you end with a negative number, you’ll need to go back through and see what unnecessary spending can be cut out. If Income – Expenses = $0, you’ve successfully created your first budget! Some people prefer to have their final number greater than $0, just to provide a little wiggle room. This is naturally preferable so that you can begin to build up a small savings.

As you go through the next few weeks, chances are, you will have to make some edits to your budget. This is more than okay. Remember, it’s a process and it takes time to figure out. Don’t be discouraged at the thought of having to create a budget; instead be proud of yourself for taking a step towards managing your money skillfully.

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How to Get a Handle on Your Budget Using the Envelope System

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Do you have difficulty staying within your financial budget each month? Does it seem as though, no matter how many raises or yearly bonuses come your way, you still manage to spend more money than you earn?

Many people measure their wealth by how much income they can generate. A better, more effective way to measure your wealth is by how much money you can keep each month.

The safe way to double your money is to fold it over once and put it in your pocket.” ~Frank Hubbard

A good way to end up with money left over each month is to allot funds from each paycheck you receive to each financial responsibility that you have, preventing you from spending money frivolously on things you don’t need. Working from a detailed budget each month will allow you to see all of your “Money In” and “Money Out,” leaving you much less room for error.

Your first step is to set up a basic budget that works for your lifestyle and your income. Begin setting up your budget with how much money you bring home every month. You’re going to want to make a written chart or typed spreadsheet that will include all of your expenses and extras – basically everything you “owe” each month. Once you have a basic budget created, you will know how much money you need to allot to each expense every month or every paycheck, depending on how often you get paid.

Now you need to figure out how to make sure you have enough money each month to fulfill all of your obligations that you have just acknowledged in the monthly budget that you’ve created.

The old-school cash and envelopes system used to be pretty popular when most people were still using cash to pay for most things. The envelope system entailed making enough paper envelopes for every line item in your budget – ranging from rent/mortgage payments to entertainment funds and pet expenses.

With each paycheck, you would simply fill each envelope with the money for each monthly obligation. When the bill came due, you would take that amount out of the envelope in order to make a payment.

Luckily, this system can also be copied electronically in many modern banks. Because online banking is so popular and simple today, it’s preferable to most people to create an e-version of the envelope system. Find a bank that will allow you to set up a checking account where your paychecks can be deposited electronically. Next, look for a bank that gives you the ability to open unlimited (or at least enough to cover all of your different budget categories) savings accounts so that you can deposit portions of each paycheck into each monthly bill category.

Then, either manually or electronically (if your bank supports it), you can transfer the necessary funds for, say, your mortgage payment, when it comes due, right out of the mortgage savings account and into your checking account, and – VOILA! Pay the bill with the allotted funds!

Do you have interesting tips to share regarding budgeting and keeping on track financially? If so, we’d love to hear from you in the comments! If you’re interested in more ways to improve your finances, give Veitengruber Law a call so we can sit down with you to come up with a plan to raise your credit score.

Image credit: C x 2

How to Catch up on Late Bills

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Photo courtesy of Gliko

If you’re starting out 2013 behind on your bills, it’s understandable that you want to get on the right path quickly to make sure that you don’t end up in a downward financial spiral. Luckily, we have solutions to virtually any complicated financial situation, and even if you feel that there is no way out, there are things that you can do to recover your financial stability.

Taking a look at your monthly budget, let’s assume that you are able to pay your rent or mortgage payment. If you are struggling to even pay for your housing, your problem needs attention quickly and your mortgage can be refinanced to help you manage the payments each month. Your current living situation may need to be analyzed, and foreclosure may be an option for you.

However, since most people end up forgoing their other bills in order to pay their mortgage payment, that will be the problem that we are addressing today.

Dealing with late fees on top of bills that you already cannot afford can end up increasing your monthly bills by hundreds of dollars, digging your debt hole deeper and deeper. This alone is reason enough to get caught up on your past due amounts, especially if you are significantly behind.

The best way to start digging yourself out of your situation is to start with one bill at a time and pay your past due amount plus some. In other words, if you are $125 past due on your gas bill, try making a payment of $150 in order to start making a dent in the overdue amount you owe.

Focus on getting just one overdue bill paid off at a time and then moving on to another bill. Start with the bill you owe the least amount of money on so that getting it paid off is attainable. When you have been able to bring the first bill current, you can then move on to bringing another bill current using the same technique.

The most important thing to come to terms with is that you will be making sacrifices in order to bring this plan to fruition. Accept the fact that you will not be able to spend money on any luxuries for the next six months or so. It may seem like torture, but remember that it is important to get your bills brought current so that you don’t have financial worries weighing you down. The relief you will feel when everything is paid will be worth it, and being financially responsible will give you a sense of accomplishment.

If you find that this plan is unmanageable for you, and you are simply unable to break even after several months of attempts, your next step is to turn to Veitengruber Law for help. We can restructure your debts so that they are manageable and you can once again live within your means.

We will gladly work with you to streamline your outstanding bills and credit card debts, and we will negotiate lower interest rates that you may be paying on any loans. Reaching out to utility companies is something that we do all the time. We’ll talk with them for you and negotiate affordable payment plans that work for your income. Lastly, we’ll sit down with you to help you establish a reasonable spending budget so that you don’t have this problem again in the future.

George Veitengruber, Esq. will meet with you to discuss your financial goals this year and will create a customized credit card and utility bill repair plan for you. It’s never too late, so don’t give up! If you’ve lost all hope and think that hiring an attorney is completely out of your budget, give us a call. We guarantee that you will not suffer from sticker shock.