Budgeting Basics

Setting up a new budget can be hard, painful even, especially when you consider the rapidly increasing price for energy. However, too often we lose sight of the essentials when planning for our extras. What are the essentials anyway? How do we account for them? I consider four categories necessary for financial independence: home, food, transportation, and debt.

Home: this includes your base rent or mortgage payment and utilities. You cannot live in a building typically without having to pay for electric, gas, water, sewage, and trash. One money saving option for the electric and gas companies is to ask about budget plans. On budget plans, you pay a flat rate each month, independent of your usage. Your meter is still tracked every month; you may get a bill or refund at the end of the year depending on how you did relative to your yearly allowance from the company. Knowing the amount every month helps to stabilize your cash flow even in the less than temperate times of year.

Food: we've discussed this before on this blog, but it bears repeating. You can save money on food. Consider where you shop, when you shop, and what brands you're buying. A random realization from my own experience suggests that proteins in the morning make for smaller meals at night.

Transportation: I know, this is a sore spot in anyone's budget right now. One way I make things more bearable for myself is to budget according to the number of tanks of gas I need. When I am driving at my maximum amount, I use 4 tanks a month. Considering how I can limit my gas use allows me to adjust this figure without feeling too constrained. Also, do not forget to include your car insurance if that is how you get around.

Debt: Remember, I'm speaking from a position of financial independence. If your situation requires you to get a loan, get a loan. When managing payments, consider the loans with the greatest amount of interest generated in your payment cycle and the interest rate. It may behoove you to submit additional payments to free yourself from the loan faster; the interest you are paying is money that goes straight to the bank. If your highest amount of interest generated does not come from your loan with the highest rate, then consider splitting your additional payment between those two loans. Most of the time the amount that the principal creeps down is minimal at the start of a loan, but if you can make a couple of larger payments towards the beginning, you could wind up saving thousands of dollars in the long term.