Money
Setting Up A Budget (How To)
Pretty much regardless of your income and/or expenses, it's important to be able to set up - and live off of - a budget. Of course, for many people, it's the following a budget that causes the problems; but whether you're able to follow a budget or not is irrelevant unless you have the means and motivation to create on in the first place! This week on How To, I'll provide you with a more or less comprehensive plan for setting up a budget that you can live with.
An Important Note
Before we begin with the actual process of setting up your budget and all that that may include, there are a few things that you need to be aware of and be careful to watch out for while making your budget.
- Choose a timeframe, and stick to it. Whether you decide to make your budget based on a weekly schedule, a daily schedule, or a monthly schedule is entirely up to you, and dependent on a lot of factors: how often you're paid, how often your bills are due, how comfortable you are with larger numbers, etc. Be prepared to do the math that is entailed with making sure that your schedule is uniform; if you calculate your weekly pay, combined with monthly bills, your budget's not going to be effective.
- Have everything you need with you before you begin. You're probably going to need a calculator to check figures, even if you're confident in your basic math skills. Personally, though I love the convenience that computers offer, I'd suggest writing down your budget neatly on paper as you go through as well; computers crash, or you accidentally highlight and delete your entire document, and can't figure out how to get it back.
- Write neatly and label everything. This one seems kind of strange, but I promise it matters. Write everything out in full; never assume you'll know what you meant later, because you probably won't - and then you'll spend twenty minutes looking at a piece of paper covered in seemingly meaningless abbreviations before starting all over when you can't remember whether or not you included the cost of gas.
- When in doubt, use the conservative end of average. If your income ranges from $5-20, estimate $10. If it ranges from $100-150, use $120. Similarly, if the cost of gas ranges from $15-30, go with $25. You don't need to necessarily plan for the worst case scenario, but it's better to be left with a little extra money than not quite enough.
You've got all that? Good. Now, we can get to work!
The Basics
Let's start out by calculating your income. Any steady source of income counts, whether it's the allowance you get from your parents, the paycheck you get from your job, or the financial aid refund you get back from school. Do not include things like birthday presents, or graduation gifts - even if you get them yearly - because gifts can't be counted on. They should be put aside to either your savings or a recreational fund, but not included in these calculations. Write this number down in a special column all by itself, and label it income.
Now, find out what your mandatory expenses are. This does not include things like a morning Starbucks run (in fact, let's leave food out of it for the time being), but it does include things like your car payment, your gas, your rent, and your cell phone bill. Add these things up (remembering to keep in mind that you're using the same timescale as you did on your income!). Put them in a separate column, labelled non-negotiable expenses.
Subtract your non-negotiable expenses from your income, and write the new figure down. This is what you have left over, and we're going to call it discretionary spending. Put it in a brand new column with that label, and move on to the next step!
Discretionary Spending - Current Habits
Now you've gotten this far. If you really want to, you can stop now and just remember that you cannot spend any more money than is in your discretionary spending column. However, I think that most people have a hard time with monitoring and controlling their discretionary income, so you probably want to keep following along.
There are a few categories that your discretionary spending can fall into, and everyone's spending habits are different. For example, the amount of money that I spend on books and soda are probably similar to what a lot of people spend on video games, or getting their nails done. Obviously, I have no idea what your primary costs are, and there are probably things that I'll forget when listing categories; as such, be sure that your own budget includes everything you need it to - and if you think I've missed something, feel free to write in and let me know!
This part may seem difficult, and unfortunately the more you need to follow a budget, the harder it will probably be. But it's important, so don't give up! Now, I want you to list the different things that you spend your money on. Anything not included under the non-negotiable expenses that costs you money, keep track of. A few dollars here and there don't seem like much at the time, but they really do add up fast. Since I doubt you keep a detailed list of exactly how much you spend, and where, and on what, on hand all the time, you might want to take a week or so and save all of your receipts and organize them by categories.
Some things to think about include:
- Food - remember, we didn't include that on our other list. Trips to the grocery store, fast food places, sit-down restaurants, bars, and even a 99 cent candy bar from the corner store all go under this category. The number will probably look high, but don't worry; we'll talk about how to lower some costs in a bit.
- Hygiene - soap, shampoo, toothpaste, make-up, etc. Again, there are a few ways to cut down costs in this area, but remember to list everything.
- Clothing - shirts, dresses, socks, shoes, even hats count under this category.
- Recreation - movies, laser tag, cover charges, the local carnival - anything not already covered that costs you money in order to have fun, write down. There's a fair amount of overlap, at least in my budget, between food and recreation, so try to not count the same thing twice; it's up to you whether the bag of popcorn at the theatre counts as food or recreation, as long as it gets written down somewhere.
- Miscellaneous - okay, so it seems kind of ridiculous to create a whole new category for that time that you bought a flower for your friend. It's okay to have a miscellaneous category, and it's probably a good idea to put some money aside for it - but if it's a consistent expense, consider creating its own list (gifts, for instance).
As I said, there are a hundred other things to spend money on, and this article would be way longer than anyone - including me - wants to read if I tried to list them all. Just make sure that everything you spend money on is listed, and you're ready to progress to the next step.
Savings
People, in general, don't like saving money. We're programmed more towards the instant gratification side of the spectrum, which is why it can be hard to tell yourself that you don't need that movie, because you're trying to save up for a house in three years. Savings should be built into your budget, so that you don't have to wonder how much to put away, and so that it's automatic for you to put aside a certain amount of money with little to no temptation to take it out "just this once". Now of course, sometimes there really is no room with your income and expenses to save very much; if you've already gotten your extra spending down to the bare minimum, you probably aren't going to be able to save very much. But in most budgets, there is room for some paring down and stashing away, and it's probably a good idea to do so. It's usually suggested that you have 3-6 months worth of living expenses saved up at any given time. Of course, the amount that 3-6 months makes up varies widely based on a great number of things; if you live at home with your parents and are still in high school, you're going to have far fewer expenses than if you're a working mother of four who owns a home. Regardless of whether it's feasible for you to meet the 3-6 months of recommended savings, it's a good idea to save as much as you reasonably can; you never know when an emergency will strike. The best way, I think, to start saving up money is to cut costs from the discretionary spending category. Now, I know you just put a lot of work into that thing, but there are almost always ways to save a few dollars here and there - and that is where saving starts.- Food: Probably the fastest way for most people to do this is to cut down on eating in restaurants and fast food establishments. Even if you go to a fast food place once a week, that's still between 5 and 10 dollars that you're spending - probably more in places with a higher cost of living; at a sit-down restaurant, a meal for me would average between $10 and $20. If you're a coffee drinker, and you go to a pricey coffee shop daily, or even weekly, think about how much money you're spending on just coffee alone; it's a lot. Invest in a coffeemaker, make it at home, and pocket the difference.
- Recreation: There are alternatives to going shopping with your friends, or seeing a movie in theatres every weekend. For instance, you could rent a movie instead - or sometimes four or five - for the same cost as a single ticket to a movie theatre. Board games are another good investment; they may not be completely cheap at first, but they have almost infinite playability.
- Hygiene: This one may be a bit more difficult to cut back on, but it's still doable. If you use pricey salon-brand hair products, consider switching to a more affordable brand. I'm not going to suggest that you immediately go for the cheapest available, because sometimes brand does matter, but for most people there's no need to spend $40 on a bottle of shampoo.
Next Time On How To!
Next time on How To, we'll be discussing ways to come up with topics! Whether it's for an essay for school, a story you're writing in your free time, or even an article for a website, idea generation can be the hardest part of any project. Be sure to send in all of your tips!
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Tags: how to, money, budgeting, responsibility
Jess: August 27th, 2009 (Day In The Life)
Hi everyone, so it's my first week at PJ's ! It's all going really well and i already have an article written and replied to a submission. It's also my last week before i go back to school. The trouble is - i don't know whether i'm going back at all. See, i got a scholarship to a private school and then they looked at my stepfather's income and decided that we could contribute to the fees. My mum was ok with that for the most part, but she and him have got into massive debt with having to pay it. And so this year, they decided to increase the amount we have to pay. And my mum and stepdad CANNOT afford that. So we went in to see the headteacher and the financial person who deals with the fees yesterday and my mum had to give in one of Yan's ( My Stepdad, he is English XD ) wage slips so they could review that. We're trying to make them decrease the amount to £0 so my headteacher is seeing one of the governers this weekend and we should get a decision by Tuesday. My mum said that if they don't reduce the money to nothing, then i would have to go to a different school. I know she's serious because she hasn't bought some new uniform for me ( Back To School Is In 8 Days ! ) and she has applied for a place in two other schools. I am really worried though, because it's not very likely that we won't have to pay anything, even though my brother who went there and completed all of the years didn't ( Fair enough my mum was still with my dad, but they know our financial situation. ). I am sorry about this long essay but i figured at least some of you would want to know a bit more about me
:: Jess :: Tags: school, money, high school, finances
Parent Problems (Big Sister)
Amy, 20 from Canada writes...
I don't know what to do with myself right now. My parents and I have never had a really solid relationship. We would argue a lot about my grades, my friends, my boyfriends and also my involvement in school. I felt like everything I did was never good enough. My boyfriends were never approved of, not matter how nice they were. Recently I had a huge argument with them about internships. I want to go away for mine but I would need some financial help. I would stay in the country but I would like to go to maybe Vancouver. I also wanted to know their opinion about where they think would be best within that area. Anyway, it ended with them yelling at me and telling me I'm speaking down to them just because they didn't go to university... even though I was NOT alluding to that at all. They were definitely putting words in my mouth. So I guess my question is, do you think it's worth it to try and explain this to them? Every time we talk it turns into an argument. I could do this internship with a loan. Should I just take that route?amanda says...
This is tough and is something I can relate to. I found that my parents weren't always supportive of what I would want to do either. Your internship sounds like a once in a lifetime opportunity and I think you should do whatever it takes to make it happen. My biggest fear is having regrets and I think if you don't go to the place you want, you will definitely regret it. You can try explaining it to them once more time, but I would seriously start looking into loans. Maybe if they see you doing that, they will realize how much you want it. You're clearly making a big decision and you aren't asking them to help support you take a trip to Cuba to be drunk for a week. it's for an internship which will teach you so much and probably make you look really good on your resume. Anyway, try to talk to them one more time, but don't be banking on their money (no pun intended)! Look into loans and have a game plan. this issue with your parents won't resolve itself over night, so start to organize yourself without their help.Tags: parents, money, fight, internship