Life Skills Blog

March 31st, 2009 | by Lynn | Tags: Bankrate, Budget, Debt, Expense, Home, Income, Money, Money Management, Personal Finance, Snowball effect 

A Little Effort Goes a Long Way

There’s nothing more we want than to be able to easily and efficiently manage our money.  After all, the money that we want to manage is money that is oftentimes, diligently worked for on our part.

This is the reasoning behind keeping a budget. Executed properly, a budget should help you see where your money is going, get more advantage out of every hard earned dollar, and help you find extra money to save for the future ore retirement.

The first step in budgeting is to set a goal. What do you want to achieve?  Do you want to correctly appropriate your income into bills payments? Do you want to put an amount aside for a big purchase or a huge investment? By having a goal, you will be able to shape your budget to best serve your interests.

Secondly, you need to take careful note of where your money is usually spent.  Look at bills, major but regular purchases (like grocery costs, healthcare costs, and the like), and everyday miscellaneous purchases. Only when you make a COMPREHENSIVE list of every dollar spent, (even the random dollars), you’ll likely see that by  knowing just where your money usually goes will you be able to identify which expenses you can do without.

Once you’ve identified these regular expenditures, think long and hard about what you can dwindle or do without. How much do you spend on your daily caffeine fix in the morning? How much do you spend on newspaper deliveries to your front door? The measly $2 or $5 of these small purchases cumulatively translates to more than $3600 a year! Instead of buying your daily (or more) latte or reading the newspaper on print, put aside the amount you would usually pay for these small routine purchases in a small container. You will be amazed at the difference it will make.

Being a slave to our bills, lifestyle and the small “wants” we have in life is a cruel cycle on its own. You’re talking about revolving accounts, payments that continually take money out of the daily budget, not to mention huge interest rates. The best way to deal with this is to pay the minimum on all of your debts, but paying more to the most important debt to pay off first.  As that debt is paid off, take that money and apply it to the next important debt.  This is refered to as the “Snowball Effect“.  You may read more about that at Bankrate.  This method compounds very quickly and you’ll see a big difference in a much shorter amount of time.

The last and most important step is to keep track of the amount you earn and the sum you spend.  Use a program or spreadsheets to keep it organized.  Make notes of the months that special expenses show up (like car tabs, or homeowners insurance).   Taking time to make a system that works for you will make a big difference on your stress level while helping you keep track of your monthly budgeting progress.