Plan 2 Prosper

We have reached the final post in our series of six on Budgeting. Let’s take a moment for a quick review:

• If you have participated in the previous Budgeting posts, you would have gone over your expenses for the past 12 months and have identified your average monthly spending in each area or budget category.
• Then you would have identified one area you would like to work on for the month and you would have decided what percent to reduce that budget category by.
• Then you would have made a list of all the ways to cut expenses for that budget category.

If you have done all of the above, congratulations. You are ahead of 99% of the population in that you have a very comprehensive understanding of where your money is going. Since knowing where your money is going is the most important step in managing your money, and since it is the hardest step to take, the rest should be downhill for you from now on.

You will now want to maintain your spending in the rest of your categories so that you keep the same average as before and then you will want to track your spending in your grocery category so that you don’t spend over your new goal that you have just established for yourself.

Monitor your progress for the month and then the next month, choose a new category to attack. Keep this up each month and by the end of 6 months, you should have your finances amazingly under control.

In another post, I’m planning to share with you an exceptional tool that will help you track your spending using a variation of the “old fashioned” envelope method (its an oldie but a goodie). But for now, we just want to get through the first month.

NOW…
Let’s take some time and talk about planning.

Planning long-term is the key to successful budgeting. Here are some examples of proper planning.

If you pay your own rates and home insurance, take the total amount, divide by 12 and invest it monthly in a savings account. Then when the bill comes due, you’ll have the funds to pay for it.

If you are going to go on a vacation, estimate your expenses now, divide by the months until you go and start saving. If you have unforeseen expenses that catch you off guard, create a miscellaneous category to cover them and budget accordingly. If you don’t have enough money to set aside for these expenses, then don’t plan on incurring the expense as it will definitely lead you into debt.

Review and reassess your budget on a regular basis. Always look for additional ways to reduce your expenses and increase your savings. Don’t forget the fixed expenditure column. It isn’t fixed forever. Buy a used car instead of a new one, drive the old one a year or two longer and save, lower your rent or mortgage by moving or refinancing, change level premiums instead of stepped in your term life insurance policies, buy more used items, shop for lower interest rates on any loans you may have.

When I completed University and became ‘self-sufficent’, I used to find myself in debt about $6,000 a year and finally understood why when I did this exercise. My quarterly and semi-annual expenses were never accounted for and when they came due, I was short the funds and had to go into debt (Credit Card/personal loans) to cover them. Once I determined this, I planned to save $500 a month to cover these expenses and lo and behold, no more surprising debts.

Often the most appropriate investment choice for an individual/family is not to invest at all … rather they should concentrate on reducing inefficient debt such as personal loans and credit cards. 

LET ME ASK YA THIS…
Have you included a PYF (Pay Yourself First) category within your budget?

LET ME SUGGEST THIS…
The next time you receive an offer from the bank to increase the limit on your credit card …. don’t do it !!

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