Nervous about being able to pay down your credit card debt? Perhaps living paycheck to paycheck?
So many of us deal with the daily troubles of life – family, career, money. But money, of all things, tends to drive us towards insanity.
Makes sense though. Without money, we can’t afford to take trips, buy gifts and treat ourselves.
Therefore we need a plan.
Simple steps to setting up a budget
Setting up a budget tends to be the scary, hairy monster that we all try to avoid. Makes sense – who wants to face the reality of how much we truly spend. Here is a simple guide to setting up a budget below:
Create a new account in Mint.com, which takes less than 5 minutes
Connect your existing financial accounts to Mint
Mint will do its best to categorize expenses, however, you will need to check to ensure they’re categorized correctly
Create tags and labels if you wish to view income and expenses as part of projects or events, e.g. I want to see all expenses related to vacations
Once all transactions have been categorized, review your income and expenses for the year or periods that have been aggregated
*Important* – this is your baseline. This is what you actually earned and spent. This is your truth, so review closely.
Once you feel comfortable with those numbers, decide how you want your next budget year to look – do you want save more to put money down on a house, pay down loans, save up for a vacation?
Now budget your numbers you wish to achieve for the year AND month into Mint
Finally, periodically review your transactions (recommend 2x per month) and review your entire month against your budget in the first of the new month – did you meet your budget? how well did you do? any surprises? any area you could cut?
The reality is, when it comes to our budgets, it is under our control. Because every time we make a purchase, we’re consciously making a decision. The only way to stop this is to start building in good habits. Here are a few areas to look into to start saving:
Dining out / restaurants – each meal averages about $10. Now assume you go out at least 3 times per week. That’s $30 per week or $1,560 annually. That’s a lot!
Buying out lunch – assume again you’re eating out 5 times per week at work. That’s $50 per week or $2,600 annually!
Internet – lot of us never think about negotiating on fixed costs such as internet, phone, etc. However, with so many options out there these days, lot of these companies are willing to negotiate to keep you around. I’ve personally shaved off $50 or more on a monthly basis by just speaking with the reps. Give it a try!
Gym memberships – an important expense for most of us! Try to see if you might be able to switch to a lower cost gym, e.g. do you really need all the bells and whistles? Additionally, don’t forget to use your medical benefits when it comes to gym memberships. Most will offer reimbursements, so take advantage of those.
Budgeting is a skill that needs to be practiced
Budgeting is like any skill and requires attention, constant practice and focus. Like a sport, in the beginning it’s a very tough process because it unveils a lot of our insecurities.
But just like in life, we have to confront those fears head on. If not, debt piles on, credit gets destroyed, and we’re one paycheck away from being homeless.
So I hope these tips can help you guide to better budgeting. Enjoy!
First and foremost, treat yourself and your finances like a business. Think of yourself as the CFO (chief financial officer) of your household – you manage the budget/finances, goal planning (e.g. new car purchase), retirement savings (e.g. 401k), etc.
So what would you do as the CFO of your household? Well, activities would include:
Overseeing the financial activities and operations of your household
Review your net worth such as your assets (e.g. paychecks, checking accounts) and liabilities (e.g. mortgage)
Analyze your income (revenue) and expenses (discretionary/variable and recurring/fixed)
Review your net savings (net profits for corporations) and compare against your budget
Finally, based on your findings (monthly/bi-monthly/quarterly), highlight performance areas that missed your budget targets and begin optimizing spend by putting together action plans
By developing a simple spreadsheet with all the key information laid out neatly, you’ll quickly spot out the troubled areas that’s forcing you to live paycheck to paycheck. (Food was always my killer!). I also suggest utilizing tools such as Mint and Personal Capital, very easy to use and set up.
Here’s a chart from a budget model I created many years ago that I still leverage today and has helped me continue to find savings and strive for financial freedom (figures are for illustrative purposes only).
Question: With what salary can I comfortably afford a $60,000 car?
Okay, so given the limited information we have, I’ll have to make some assumptions here to help whether or not you can comfortably afford a $60,000 car. Here we go.
First, let’s make some assumptions for the car in terms of what you will pay for monthly payments:
Okay great! Now that we have that cleared away, let’s now assume a frugal budget given each credit scenario as well as salary potential. Moreover, let’s assume your single, living alone with no tenants and have no student debt. I removed 401k/IRA contributions from this analysis for simplicity sake (would add another potential 10–15% from net savings).
So as you can, can it be affordable? Sure, depending on what level you are at in your career and what your salary is. However, this is all heavily dependent on whether you stick to your budget and are able to live within your means. Otherwise, you’ll quickly be living paycheck to paycheck, which you’ll want to avoid at all costs.
Hope this provides some visual context to your question. Enjoy!
If you found this engaging and helpful, feel free to visit my website www.yartykim.com!