Welcome to November! What better time is there to start a new budget than the start of a new month? And today is an especially good time to start anew, because Christmas is only 55 days away, and sticking to a budget is a great way to avoid overspending on holiday gifts. If you’ve never built a budget before, take heed – the exercise can be extremely overwhelming and emotionally draining. And if you’ve built a budget before but haven’t been able to stick to it, just consider this your opportunity to start anew.
A budget is a very personal thing and it depends on a myriad of factors, the most important of which are your income, your monthly expenses, and your accrued debt. It’s a really good idea to track your expenses for a month before creating your budget. But if you haven’t done that yet, you may lose track of your goal – so just jump right in and see where it takes you. Here are some things to consider so that you’ll build a manageable budget:
- Housing – I once learned that housing expenses should be no more than 1/3 of your total income. When possible, they should be less. If your housing expenses are too high, consider refinancing your mortgage or moving in with a roommate to reduce your costs. Because housing is a non-negotiable expense, it’s in your best interest to work hard at finding ways to reduce the cost so that you’ll live comfortably without overextending yourself.
- Food and clothing – It may seem funny to lump these together, but they’re actually quite similar, since they’re both necessities whose expenses can be flexed whenever necessary. For example, if you need to purchase clothing on any given month, you can purchase cheaper food or eat out less. Alternatively, if you know that you’ll be having dinner guests, you can cut back on your clothing purchases.
- Transportation – You may think that you can’t possibly cut back on your transportation costs, but you probably can. For starters, take a refresher in how to save on gas and other driving expenses. You should, of course, also consider whether you can get a reduction of your car insurance expenses, and whether you even need your car.
- Taxes – Sorry, but taxes are a necessary part of every budget, so make sure that you factor in the taxes that you pay.
- Utilities – There’s no way to cut out utility expenses entirely, but there are ways in which you can reduce your utility costs so that you’ll know they’re as reasonable as possible. Make sure to turn off lights when they’re not in use and to use the normal cycle on your washer instead of permanent press…little by little you’ll see the savings as a result of your efforts.
- Debt – The only way to get rid (and prevent it from growing) of it is to pay it off slowly (or quickly, if you happen to win the lottery). You may already feel constrained by your budget, but failing to include a gradual debt-repayment plan will prevent your budget from succeeding.
Once you’ve done the preliminary calculations for your budget, you’ll see one of three things – your expenses are greater than your income, your income is greater than your expenses, or you’re pretty much breaking even. If you’re not in the red, congratulations! Even if you don’t have money for extras right now, hopefully after a few months of sticking to the budget you’ll be able to reconfigure your spending to find some extra cash for retirement, savings or a specific item you’ve been wanting. If you find that you aren’t earning enough to support your spending habits, you’ll need to either change your spending habits or find a way to earn more money. But don’t panic – you’re not alone, and with determination and a bit of hard work, you should be able to climb out of the deficit. I hope to address many of these issues in the next installment of Budget Boot Camp. Until then, stay focused and positive, and enjoy watching as you take proactive steps to improving your life.