Many American families live on a fantasy budget; they really believe that, somehow, they will find the money eventually to pay for their maxed-out credit cards and/or store credit purchases. It’s called wishful thinking and since economic times are hard it’s time to come back to reality. Ideally, we should all be limited by the cash in our pockets; in fact, we all know that’s pretty much impossible. Sometimes buying on credit is an absolute necessity, such a house and a car, and other times emergencies pop up which force us to solve the problem immediately with a credit card. But the key is to plan ahead to make sure the added burden will be taken care of in a few months.
How to Organize a Budget
As I have a wonderful wife who organizes all our expenses very carefully and who knows almost to the cent what our checking account balance is, I don’t really worry about my family budget. If however you have trouble balancing your monthly budget, allow me to give you a few tips:
1. Make a list of all the expenses you know you’ll have during the month following payday. Use estimates if necessary, for example food, clothing, gas, maintenance, leisure (entertainment), and include a small amount for unexpected disbursements.
2. Compare the total to your net income, also known as take-home pay. If you see a deficit, in other words your net pay doesn’t cover all the expenses, then you have no choice but to start spending less. I repeat: You have no choice; you have to cut your budget until you have a surplus of at least 10%.
3. The process should take you a couple of hours every month or even longer. It’s time well worth the effort. Get together with your spouse or partner and motivate each other to find a way to save and stay within the family budget.
4. Keep a careful account of each and every expense during the month and when payday comes around, compare your estimated budget with the actual facts. Adjust for the following month as needed.
1. Cut the fat.
Gym memberships you hardly use? Cut it. Eating out twice a week? Cut it to once every 15 days. Going to the movies every week? Stay at home and rent a movie. Spending too much on groceries? Make a list and stick to it. Magazine subscriptions? Cut it completely. Buying expensive books? Your local public library may have very cheap used books and magazines for sale. Internet on every cell phone? Come on, you don’t really need these expensive family plans. Stick to basics.
2. Use the coupons.
Yes, I know that cutting out coupons out of the Sunday paper is a fastidious task. But think of how much money you save at the supermarket. Consider also going online and doing research on those coupon sites. You may save $20 to $40 every week on your food and other household items for a family of four.
3. Timely purchases
My wife has a special budget for clothing: She buys her winter clothes at the beginning of spring and the summer stuff at the beginning of fall. You can save a bundle by taking advantage of special sales; stores want to get rid of stuff not in season.
4. Energy efficient appliances
From light bulbs to electric appliances, shop for the ones which are designated as energy efficient. “Qualifying products purchased between January 1, 2009 and December 31, 2010 are eligible for a tax credit equal to 30 percent of the product cost. Installation is not included; be sure to obtain an itemized invoice from your retailer or installer. The maximum amount of homeowner credit for all improvements combined (including roofing, insulation, HVAC, and water heaters) is $1,500 during 2009 and 2010.” A tax credit is always welcome and the energy you save may add a few hundred dollars to your budget every year.
Save, Save, Save
There is always the risk of being laid off, of being in an accident, of a natural disaster striking your home or having a serious illness. Your overall budget should take this into account and if there is no other way, use a credit card and program monthly payments until the debt is paid off. Meanwhile, if no emergency occurs (Hallelujah!) place the saved money into a financial instrument that can be easily redeemed without penalty.