Steering Clear of Your Fiscal Cliff With Easy Budgeting


God wants us to prosper financially, to have plenty of money, to fulfill the destiny He has laid out for us.
Joel Osteen


With all the talk about fiscal cliffs, it is hard to feel optimistic about our finances.  What does this really means to all of us on a personal level in terms of managing our own finances?  All I know is that it is probably a good thing if we pay down our personal debt and try to accumulate some kind of savings for cushion and retirement.

Over the years I’ve read a lot about personal finance and tried different ideas, ditching ones that don’t work for me and keeping or modifying ones that made sense.  I’m no financial guru,  I just care about reducing financial stress in my life so I can spend the rest of my time enjoy other wonderful things in life.

Here are some simple personal finances strategies I use:

 

Track Your Spending

Track your expenses for a month or two by writing down everything.  I mean it - everything down to the penny!  If you have a smartphone, there are a lot of inexpensive apps where you can track your spending on your phone.  Make it a habit to track.

Another good way to track your expenses is by using your credit card statements.  Online statements usually have about a 24 hour delay but for the most part, they are an accurate way to keep track.  There is also a lot of relatively inexpensive software packages where you can download your bank transactions into.  They also allows you to create manual entries.  You should absolutely make the investment and get a personal finance software.  I use Quicken but there are a lot of good ones out there.

Keep all your receipts for everything you spend each day in your wallet.  If you didn’t get a chance to track the transaction right when it happened in your smartphone or in a notebook then keep the receipt and input it into your software at the end of the day or the end of the week.  (Warning: personal finance tracking can get additive!).  


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For years I tracked my spending at the end of each day.  I looked forward to sitting with my software and looking at the numbers change.  I really enjoyed it once I started earning decent money and I didn’t go over my budget.  

I’d say a healthy amount of tracking would be weekly or bi-weekly.  Don’t save it all up too long though, because wading through a pile of receipts is no fun and you will forget what you spent your money on.  Then the whole thing feels more like a chore.  Keep it light.  Grab a cup of tea or glass of wine before settling in to do your finances.  Enjoy it an look forward to it. 

Create a Realistic Budget Based on Your Actual Spending Habits

Once you know how you spend and what you are spending your money on.   Group your spending into different categories like: food, entertainment, cell phone, utilities, gym membership, clothing, rent, mortgage, property tax…you get the idea. 

When you are looking at your expenses on a monthly basis you might get some insight into where you can reduce and find a little bit of savings.  If you are handy in Excel, you can group these items fairly quickly then set as your budget limit that you don’t plan to exceed on a month to month basis. 

Now, look at where all your sources of income are coming from on a month basis and add them up.  Then take all the budget categories you created and add them up.  If you have extra money leftover congratulations!  That’s what you will sock away into savings.  If you need more money than your income provides, then you need to look at where you can cut back or make more money.

Generally it’s easiest to cut back on discretionary items first like hobbies, entertainment, groceries.  Then you might want to get creative in other areas.  For example, I had a $28 long distance plan on my home phone that I paid for monthly.  When I looked at the long distance calls I was making, it wasn’t worth paying that much every month.  So I cancelled the plan and got a long distance card that I re-fill whenever it runs out.  So far, I find I only re-fill the $20 card once every 3 months.  That’s a savings of $64 over 3 months or $256 a year by changing my long distance plan!

Get One Good Credit Card

You may be surprised that I’m  saying, “get a good credit card” rather than, “cut up all your credit cards” as a lot of personal finance strategies advise. 

Cutting up my credit cards never worked for me because I do a lot of stuff online.  I also use a lot of drive throughs and pay-at-the-pumps.  If I cut up all my credit cards, it would involve a lot more time wasting walking to ABMs getting cash and waiting for change.

It could be argued that credit cards make it too easy to spend.  However, if you adopt my first strategy of tracking every cent you spend on an app or personal finance software daily, you will already see on a daily basis how quickly you are spending and how much you have left over.  I find this a lot more useful than dealing with cash and a wallet full of loose change.  When I see on my smartphone app that I only have $12 in my budget leftover for eating out and there are still 3 more days left before the end of the month, I know not to spend on a big meal.


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Using a debit card instead also works well for tracking your finances, however, I haven’t found a rewards card that I like that has a debit option.  That may change, but for now I’m sticking with my credit card.

When picking a credit card that works for you, think about what your goals are and your lifestyle.  When I was in my 20s and living alone, it was a big deal to me to visit my parents in Florida so I used a rewards card that had travel points that I could use towards airfare.  As I grew into my 30s and started a family my big priority was getting cheap groceries (it still is).  So I have a  grocery rewards card.  Think about what your big purchases are on, then try to get a card that helps you out with meeting your goals.

Use your card for everyday transactions but pay it off as you go.  You can make as many payments to your credit card as you want without incurring any kind of transaction fees (debit cards sometime charge you for transactions after a certain number, depending on your bank). 

By using your credit card for daily expenses that you have budgeted for, you are helping yourself accrue your rewards points faster. 

What is all of this for?  At the end of all this budgeting and tracking we hope to be a little bit richer than last month.  You can track this by calculating your net worth at the end of each month.

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Track Your Net Worth

Net worth is generally calculated by adding up all your savings, assets and investments and subtracting all your debt and liabilities.  This number should get bigger each month.  Even if it is a minuscule increase amount every month, your goals is to have inflow to your net worth, not outflow.
 
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Enjoy the process of growing your net worth and tracking your finances.  And remember, there's nothing wrong with getting rich slow...just get started on the path.

 
What are some things you do to keep your budget on track?  

Comment or send me your questions.  I'd love to hear from you.  
   


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