In case you missed Part 1 on How to create a family budget you can catch up first.
Track Your Expenses
Each week for 15 minutes or so, I spend “updating the books” or tracking our expenses by updating Quicken. I’ve found it much less daunting by spending a few minutes each week to record expenses. After the first month, it’s important to compare your actual expenses versus your budgeted amount to make sure you’re staying on track. This will highlight where you did well and other areas where you may need to “tweak” your budget.
Keep It Real, Stick with It and Tweak Your Budget
It is absolutely critical to keep your budget “realistic” and stick with your budget. If you didn’t meet your budget, try to figure out why you weren’t able to stay on budget. Did you set an unrealistic goal? Or was there anomaly or unexpected event? Personally, I review our budget each month – if not, then I may lose sight of any “leakage” and not stay on task to ensure we meet our financial goals.
Finally during my annual benefits enrollment window (October/November timeframe), I take the opportunity to draft the next year’s budget by leveraging the existing year’s budget. Overall most line items remain true; however I may have some expected expenses in the coming year that I need to include within the budget. Additionally, I’ll review the prior year’s budget results and make any necessary “tweaks” by lowering or expanding an expense category.
Tips and Suggestions:
- Debt reduction should be Priority #1
- To save yourself some grief, use a personal-finance software program such as Quicken or Microsoft Money, which offer built-in budgeting tools
- Even though I’m believer in the notion, “the devil is in the detail” – don’t be too overzealous in tracking expenses and shift your focus on categories of expenses – meaning, you don’t need a line item for expenses that you spend less than $100 per year
- Avoid cash leakage and ATM withdrawals and bank fees – If you use cash to pay for expenses, it’s critical to track and categorize your cash expenses
- Obviously as the U.S. economy crashed in Q4 2008, a contributing factor was many Americans were “living outside their means” by spending beyond their limits and relying on credit accounts
- Shoot for spending only 90% of your income and allocate the remaining 10% to you and other big-ticket items, like retirement savings, college savings, emergency fund, vacation home, etc.
- Be patient and don’t get frustrated . . . it will take you 3-4 months before you get better with your budgeting
- Don’t include sources of income that you can’t be sure to receive like investment gains, tax refunds, etc.
- Even though your income may increase overtime due to annual salary increases, promotions or smart investing; don’t start spending on luxury items until you’re sure you’ve covered inflation. EXAMPLE: I received a 2% merit increase in 2010; however with tax breaks expiring at the end of 2010, our effective tax bracket will increase by 3% – resulting in having less disposable income in 2011.
You can download and use this budget template to get you started.