This isn’t a shot a lifehacker.com, I am sure a lot of thought went into their recent article about controlling and managing your debt, however as someone who once found myself 100 miles away from home with an empty gas tank, wallet and checking account, I don’t feel like it gives you a real start to managing your budgets. A little background, like many I received my first credit card just after graduating from college and I used that up quick! I didn’t have a plan on how to manage money, nor really know what I was spending money on. I knew I had to pay my rent on the 1st and put gas in my car to get to work…so I could get paid to thus pay my rent. After that every penny left over was spent somewhere. Between credit cards, the credit line on my checking account and loans I think I was somewhere around $25K underwater, thankfully it didn’t get worse than that.
When talking to people who struggle with money, the common theme I find is they don’t know where it goes and only vaguely know it comes in at some interval based on their companies payroll schedule. The tips below worked for me, and I think they can be applied for most people. The plan is very simple, requires nothing more than a Google/Excel spreadsheet and a bit of self control. For me personally, I use two checking accounts from the same bank, a separate savings account and a credit card with some type of rewards program.
First and foremost, you need to understand where and when your money comes from. For example if you get paid on the 15th and 30th every month its very easy to plan for your two paychecks per month, but on “long” months where a 3rd weekend may fall in between pay days you will need to account for that but you take home more on a monthly basis than a person who gets paid every 2 weeks. If you get paid every two weeks, you can consistently plan and budget on a two week cycle, which is typically two paychecks per month yet twice a year get an “extra” check (less things like gas money and groceries which are always recurring).
Second, you must now determine where you money needs to go each month. Make a list of all your bills, their due dates and your minimum payments due to start; we will work on paying off debt later. For certain items, such as groceries, electrical and heating bills my advice is to budget on the high side. This buffer allows for random overages, and when you don’t have an overage, the money can go towards other debt or into a savings account.
Now that you know what bills are due, when they are due and how much is due, sort it out. If you are used to using things like Quicken then by all means use what works for you, personally I find it difficult to visualize where the money is supposed to go. For me, I keep it simple and use a basic spreadsheet that looks something like this:
Each time we get paid, I fill in the minimum amount I have to pay into each section, left overs go towards spending money for the week, savings account or paying off extra debt. So after getting paid it might look something like this:
When each payment comes due, I make that payment and mark the bill as paid and re-fill that “bucket” when I get paid again. Now I mentioned earlier I use a credit card that earns me cash back, however I use the card exactly as I would as if I had cash in hand. Said another way, the credit card columns and spending columns will always be in balance. For example, if I have $150 in spending money this pay cycle, my credit card column wouldn’t exceed what I started with in my spending columns. The only deviation from this is for bills in the middle that I can pay with a credit card. Again lets look at an example:
As you can see, the total in my account of $2950 hasn’t changed yet because all my spending was just moved to the credit card column. When the credit card payment of $390 is due, I make that payment and delete it from the column. The total account column should almost always match your actual account; the only time it shouldn’t is if a payment has not cleared yet but you already deleted it from your spreadsheet. This allows you to have a great view of where you money is, where it needs to go and what it is being spent on. You can also use this to understand where you might be able to cut back some extra spending. Are you spending a lot going out to dinner every week/month? Switching from a nice restaurant to a home cooked meal could likely save you $50 – $100 by making that one switch or making small cuts when you do go out, like not getting an appetizer and desert could easily save $10-$20 per meal.
This should provide you with a good basis for managing your budget on a week to week basis. If you are carrying any extra debt you would like to get rid of, make yourself a payment plan based on your other responsibilities each month. For example if you owe $1000 on a store credit card with a high interest rate, you may be better served paying that off before trying to tackle larger student loans that carry a low interest rate. Pick one debt item to focus on at a time, make the minimum payments on the others and knock that one item off, when its gone not only will you feel good but you will have adjusted to living on that budget. Now you can apply that money each month to other debt or savings/investment opportunities.