Week Two: Budget, Budget, Budget

budget (Photo credit: 401K)

Continuing along with February Financial Resolutions

Week Two: Budget, Budget, Budget

Week Two of my February Resolution, and it has become clear I definitely need to budget, budget, budget (or win the lottery, but that is still a financial dream) to meet my financial goals. I am determined to make my top three goals: the two-week trip with my grandchildren, staying at home so I can offer myself as an alternative to daycare for my children and grandchildren, and having a really big anniversary party for myself and my husband to celebrate 40+ years, including getting him the big gift he has his eye on – a new free-weight set.

That of course means cutting some corners and living frugally for me, because the way our family budget works, I only get an established piece of the whole.  That means I must start living in control of the finances I can control. I have some tried and true methods for organizing finances in a way that contributes to financial success, and I’d like to share them with you below.

This guide will help you to:

1. Track Your Spending
2. Create a Budget
3. Determine Your Net Worth

1. Track Your Spending

Do you know how much you spend each month? If not, now is the time to find out. Many great advisors will tell you to track spending over a one-month period to find out exactly where all of your money goes. This is good, it does help, but we are humans, and lots of people change the way they spend when they start writing stuff down, and often expenses pop up in one month that aren’t always there (think: registration for your car, a visit to the doctor, a child’s birthday), so just writing one month of spending down does not really give the whole picture. How can I change that? you may ask…

If you participate in on-line banking, you can expand this to a three or six month retrospective review, and really get a quick-start on this part of the goal.  Just log on and create a print out of the last 90-180 days.  If you do not e-bank, you can get the same information if you stop by your local branch and ask a teller for a 180 day print out.  This will give you a great history of what you have been up to lately. I like color, so I highlight: Green is rotating bills, orange is groceries, pink is out to eat, yellow is gas, purple is entertainment, etc. Then I add up the specific areas and see what is going on and how I flex from month to month.

After you have either tracked your spending this month real-time, or used the bank print outs to give you a jump start, ask yourself – Are you spending too much on incidentals? Are you falling behind on your savings goals? Spending more than you make? By the time you finish this exercise you should have an answer to all of these questions. Below is a link from an excellent planner at frugalliving.com.  She has developed a worksheet that is visually appealing to use and very helpful:

• Monthly Spending Worksheet

2. Create a Budget

Once you’ve established a list of financial goals (week one) and taken a close look at your spending habits, it’s time to create a budget that reflects how you want to spend your money.

3. Determine Your Net Worth

Another very important part of budgeting is knowing what you have, not just what you want.  No point in attaining a goal if it risks your long-term future.  Understanding your net worth can tell you a lot about your current financial health, and help you to plan for your financial future. Find out what your net worth is now, and then get in the habit of recalculating your net worth yearly or whenever there is a significant change to your finances. This worksheet is also from the planner at frugalliving.com, and just as great as the monthly planner she created.

• Net Worth Worksheet

 

I wish you luck in Week Two – this is always the hardest part for me, and usually where I fall apart, so I am counting on my newly created Top Three Financial Goals to pull me through the adjustments – I love my morning coffee and I can’t help but want a few nice extras like my hair color or manicures.  So finding a way to not break the bank and attain all that I hope to this year is definitely an exercise in stepping out of my comfort zone!

 

Related articles

• Product Review: iPhone App Net Worth Pro (savings.com)
• Five Reasons You Should Budget (turbotax.intuit.com)
• How to make a simple budget and stick to it (moneyexpert.com)
• Financial Tricks to Master for a Happier Life (wisebread.com)
• 7 Financial Resolutions You Can Actually Keep (money.usnews.com)