Jun 2010
27
The word ‘budget’ can sometimes be intimidating. It means that you will have to watch what you are spending and account for where your money goes. Many people will say that drawing up a budget can be just as difficult as following it. "Budget" may feel like a four letter word, but it doesn't have to.By definition, a budget is a financial document that is used to project income as well as expenses. Budgeting is a process used by individuals and companies to estimate how much money they will have towards future expenses or investments. It can be prepared by simply using a paper and pencil, a computer spreadsheet program or with a financial application. Preparing a monthly budget includes listing all sources of income, required expenses and other possible expenses. Simply spending less money is a great idea, but without a budget, you may be fumbling in the dark. It's hard to limit your spending sufficiently if you don't know how much you need to limit it.
Assuming you make enough money to cover your basic living expenses, you can save money even without a budget. It's a matter of follow a few basic saving and spending principles:
How to Save Without a Budget
Set aside 40% of your paycheck for today and for your future. To ensure you have all you need now and 50 years from now, set up automatic withdrawal from your check so that 10% - 20% automatically goes to your 401K. Another 10% should go into a bank account for your emergency fund. The final 10% is fun money for you. Once your emergency fund reaches a value equal to half your yearly salary, you can start putting that money into your fun money account. Your 401K, temporary savings/emergency fund are absolutely off limits. You cannot withdraw from these. Ever. Use your fun money and self restraint.
How to Spend When You Have no Budget
- Always shop with a list and stick to it. This will keep you from buying unnecessary items.
- Don't eat out unless it's' coming from your fun money. This is not to be considered food, but entertainment. Your food money is for household groceries.
- Buy what you can bulk. Cereal, paper products, laundry products, medicines and vegetables can all be bought in bulk to save a lot of money. Just be careful to store the excess out of sight. Otherwise you are simply likely to eat more than usual, which ends up costing you more.
- Avoid opening any type of credit account, including credit cards and loans. You will end up paying more in interest instead of earning interest on the money in a savings account. If you do use credit, pay all purchases off in full by the monthly due date. It's better to use cash whenever you can.
- Learn how to tell the difference between a ‘need’ and ‘want’. Needs are necessities such as food and clothing. But we can sometimes forget that the type of food and clothing we buy may not be necessary. Food is necessary, but not necessarily caviar. Clothing is a need, but that doesn't mean you need a Gucci suit. Fill you needs at the lowest possible price and you will never be in danger of lingering in 'want' territory. Wants should be purchased with your fun money account.
- Choose store brands and generics whenever possible. Of course, if the name brand is on sale for the same price or less than the generic, go for the name brand. Generic foods have expanded to include almost every type of retail product imaginable. But don't automatically grab the plain package. Many brands may seem generic when they are actually more expensive. Always check the price tag.
- Always compare prices. For more expensive items, do some research to find the cheapest solution. For everyday groceries, pay attention to prices so you know when you are getting the best deal.
It will take some practice, but once you fall into these habits, it won't matter that you don't keep a budget. By always limiting necessity spending to 60% and setting aside 40%, you will be able to save money without a budget.
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