Thursday, January 18, 2018
Lessons with an Accountant – Budgets
Welcome back to my new monthly series “Lessons with an Accountant”
Today’s lesson is “Budgets – How do you make one and Stick to it!”
Disclaimer: I am an Accountant but not a CPA, please consult your CPA before making any financial decisions.
The story of the tortes and the hair, should be your story when working with a budget.
Slow and steady wins every time.
What is a Budget?
Google defines “Budget” as an estimate of income and expenditure for a set period of time.
Income less expenses equals cash flow
To set up a budget I recommend an excel spreadsheet. If you are not good with excel, pen and paper will work. (I will be covering a lot, if you would like a sample excel template please email me at firstname.lastname@example.org with the Subject “Budget Template Request”, this will be free).
Yes, there are apps you can download on your phone (like Mint), but I prefer something that won’t get lost if something happens to my phone; plus this is a more secure method. Would hate for an app to crash or get hacked. Just a few “Accounting” thoughts when looking at technology to help with your finances.
This is how my husband and I stopped living paycheck to paycheck
(I am an Accountant not an English teacher, be kind if I misspell an item on a spreadsheet)
Here is how I put my budget together (numbers shown are not actual amounts for myself). I make adjustments each month for items I know we have. For example we may take a trip and we need money for that, or it is time for some vehicle repairs. Using an Excel Spreadsheet you can adjust your budget easily in case something comes up unexpectedly and see if/where you can cut expenses.
Steps to a Budget
1. List all Expenses by category (left side of spreadsheet)
2. List all income (top right)
3. Calculate Income Less Expenses (below income)
4. Work in controllable items like Savings and Debt pay down (middle right)
5. Calculate final Cash Flow (bottom right)
When looking at Debt I try to calculate a reasonable amount to pay each month and set a goal.
I take my budget a step further and break it out by week. Listing the income we have and the expenses that will be paid that week. This allows me to see a running total of our cash flow.
This works when I go to the grocery store I can update with the actual amount I spent and track how I am spending money. Was this a ‘big’ shop where I had to restock my pantry of items? Did we have a special dinner with friends or some other thing going on that increased our grocery bill, or should I revise my budget to a higher number? All questions to keep your budget a live and actual plan. In my excel spreadsheet I create a tab for each month so I can go back and see what is going on.
So you ask, but how do I stick to it?
1. unsubscribe to all sales emails
2. pull all credit cards out of your wallet and leave them at home
this will cut temptation if you don’t have a way to pay for an impulse buy.
3. keep cash on hand for items you may need during the week, like lunch at work.
4. set a goal for yourself. pay off a credit card in 6 months.
5. Reward yourself. All work and no play makes……
You have worked hard to pay down debt, take a break and get something for yourself. If you deny yourself all the time you will stray from the budget. Make sure you still pay your credit card minimum!
Be realistic. It took your parents a life to build what they have. It will take you time to get out of debt and have a savings at the same time. If you have credit card debt, find out your interest rate. Call the credit card company and see if you can lower that rate. If not, then make it a priority to either pay off or transfer the balance to a zero interest credit card. Many cards offer a 1 year interest free rate even on transferred balances. If you choose to transfer, once the old card is paid off CUT IT UP! You don’t want the temptation to rack up more debt, but you need this credit card to establish good credit on your credit report, so keep it open. You can always request a new card if needed.