In the process of making a budget it is helpful to have "goal" targets, particularly for the areas that can be highly variable such as groceries, gas, and entertainment. These goal numbers allow you to meet your savings goals, without being terribly restrictive. Say I have budgeted $50/mo for entertainment (I include eating out in this category). This money does not go to the same place, so I will take the $50 cash and put it in an envelope in my wallet labeled "Entertainment" I spend only from this envelope; when the money is gone, entertainment for the month stops. As a personal incentive, when I come out ahead of my budget for the month, I take my savings and place it in my travel fund.
If I find myself always shopping at the same place for groceries or gas, I may look at a store debit card. Groceries tend to be a larger part of my budget; I do not like carrying around that much cash at the beginning of the month. Gas can be trickier, so I work the envelope in reverse. I write my gas target on my envelope, put the gas on my credit card, place the receipt in the envelope, and write the remaining balance on the front of the envelope.
I stumbled across 6 Budget Bombs when preparing this post; I think they are worthy of direct comments.
1) Entertainment: without some of your budget alloted to entertainment, it will feel like a burden. A reasonable aim is 5%; but if you are spending 10%+, it may be time to scale back.
2) Savings: Pay yourself first and be consistent. I've addressed this with this previous post.
3) Debit cad reliance: While I do not advocate a strict cash-only budget, it is necessary to have a system to track expenses so you know where your money goes.
4) Credit card "minimum" payment: Often the interest rates on credit cards are higher than any sort of investment you can make. Personally, I try to avoid using a credit card at all costs.
5) Emergency savings: This is a savings goal to have 3 to 6 months of income tucked away. Having emergency savings helps you plan for the unexpected.
6) Live within your means: If it means cutting back, then do it.
This all said, do cut yourself a break when you do not meet your budget goals. Life happens. Always look to the future when budgeting.
Subscribe to:
Post Comments (Atom)
4 comments:
This is a wonderfully helpful blog! Kudos.
While some people can not handle credit cards, they are very useful tools to other people.
My wife and I put most of our purchases on a credit card during grad school. We did make sure that we did not charge anything that we could not pay off at the end of the month. In addition to providing protection from lost of stolen cash and also fraud protection if we purchased something defective, we used reward cards. By doing this, we never used our own money for going out to eat. We would only go out to a restaurant after we had saved enough points to redeem a gift card for that restaurant. One of our cards used to give 5% back on gas and groceries. Over our grad school experience, this was $1000 or so.
While anonymous' point about reward cards is a good one, I think it's a mistake to describe people who carry a balance on their credit cards as unable to "handle" them. Credit cards invite you to carry a balance, and of course the companies themselves prefer it-- that's why they're called credit cards. To imply that people who use credit cards to get them through the month are irresponsible or somehow can't help themselves is denying the whole way the system is set up. It's not wrong or irresponsible to carry a balance on your credit card, though it certainly is, long-term, not financially advisable in most cases.
I actually use my credit card for almost everything because it helps me budget. I can check the balance online every day and see exactly how much I've spent on each of my budget categories. I pay it in full every month so the interest rate isn't an issue.
Post a Comment