Starting a budget

by Nick on July 28, 2010

My plan to pay my student loans off early got complicated.  It wasn’t supposed to.  It really is a simple plan.  It wasn’t a simple decision though (as you can tell by this, this and this).  I gave it a lot of thought.  This blog is flexible.  It gets complicated when it needs to, but will focus on keeping personal finance as simple as possible.  So let’s get into starting a budget.

This post is influenced by an article on MSN Money, which is one of my favorite websites for personal finance.  Why?  There is a lot of information on there.  It’s generally simple and comprehensive.  And it’s well organized.  My biggest complaint is that many times I have a hard time figuring out when an article was written.  I think that’s an important piece of information for a site giving personal finance advice because things change. Tax and other laws change. New savings or retirement plans or incentives are created. Old ones are sometimes changed or eliminated. So knowing the date of an article can be very important. My second least favorite thing about their website is that there is sometimes too much interesting information and I end up losing hours at a time to article after article!  I have the same problem with Wikipedia.  But I digress.

Let’s talk about starting a simple budget.  I will add more detail in future posts, but today we’ll start with my top budgeting rules that helped me set up (and keep up with) my budget. 

  1. Budgets need to be written (it really does help put things in perspective and keep me motivated and accountable).
  2. Set your budget amount below your take home after taxes (If you take home $1,000 per month, don’t budget to spend it all.  Ignore some of it and direct that into automatic savings.);
  3. You need line items for savings (Even after the automatic savings referenced in number 2, budget to intentionally save more.  It’s very important for me to save intentionally and unintentionally.);
  4. Budget not to pay something off that you do not own but to save for something and pay cash for it.  (See here for a little more on this one (For those who insist on using credit cards to get rewards, to pay the credit card off in full the day you take your purchase home.  Do not wait for the bill to come.  You should still get the rewards.  But it’s more of a cash-type payment.));
  5. Audit yourself every so often (once per week, month, couple months) and see what big expenses you can eliminate or reduce – and shift that amount into savings.  (This can be motivating and depressing.);
  6. Budgeting takes time but does not have to be complicated (My budget is less than 20 items.  It is not complicated, but it is comprehensive.  It takes about one hour per month, but I enjoy it.);
  7. Prioritize and then list items on your budget in order of priority (Actual necessities come first.  This is also helpful to point out things to eliminate.  Just look at the bottom and start slicing!  Also, the things on top will almost always be there so it motivates me to look on ways to save on them (food and home for example);
  8. Budget for emergencies (Also define emergencies – in writing!  Here are a few examples. More on this later, but Christmas is not an emergency.  Budget for it.  The water heater unexpectedly bursting and flooding your basement is probably an emergency.  );
  9. Do not raise your spending when you get a raise.  Dedicate that raise to doing something productive (paying off debt, saving for college, retirement, a new (to you) car, vacation, emergencies).  For now, I’m dedicating my raise to saving up and paying off my student loans by the end of 2011; and
  10. Budget with a buddy.  If you’re married or living with a significant other, this can be easy if you and your spouse/significant other are on the same page, great.  If not, get on the same page – you may have issues greater than this site can address.  If you’re not married, find a buddy of the same mindset and each of you budget.  It can actually be fun and provide accountability, support and motivation.  I’m married and my wife and I keep each other motivated and accountable.  It works for us.

So there are the top ten to me.  Did I forget anything important?  We’ll take these one at a time in separate posts.  What budget tricks work best for you?

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