One of my New Year's Goals is to continue to manage my finances in a manner that allows me to remain debt-free, while putting daughter through university.
How will I achieve
my financial goals? I set myself a budget or "spending plan". I base my
budget on my take-home pay, after deductions. Ideally, one's expenses should be
less than one's income. Or, at least, equal it. If the expenses are
greater, then, one can try to increase the income or decrease the
expenses (or both). For several years, I tried to limit my
spending to 70% of my take-home income (not always successful) in order
to save the remaining 30% (again, with varying degrees of success). Now, however, because I am paying for daughter's tuition and rent, my monthly expenses amount to more than my monthly income and those savings are proving to be a blessing.
One can't set up a budget without knowing the current expenses. When I set up my initial budget, several years ago, I kept a spending log for 1 month and kept track of all my
expenses and I went through
my check book and statements for the past year to get an idea of
one-time yearly payments and monthly averages for things like utilities.
When setting up my budget, I started with the fixed expenses. These
are the expenses that remain the same from month to month - such as
mortgage, property taxes, car payments, auto insurance, etc. One can
always try to reduce them by refinancing, switching insurance companies
or making changes to policies, etc., but usually, these are one time
changes.
Then, I deducted all the fixed expenses from the income and
that is what I had to spend on all the other, "discretionary", expenses, such as food,
clothing, utilities, savings, etc. As I said earlier, ideally, this amount should be sufficient to meet
all other expenses. If it wasn't sufficient, then, I needed to make some adjustments to make sure that
they do come out even.
I allocate a set amount each month for my
utilities:
water, gas, electricity, phone, etc. Even though my gas (heating,
cooking) varies from nearly $300 in the coldest of winter months
(Jan/Feb for us) to under $20 in the heat of summer, I average it out
and keep what I don't spend during the summer in the account to help pay
the higher bills in winter. For
items that are paid quarterly, yearly, etc., I take the cost and
divide by 3 or 12 and put aside that money monthly, either in my checking account or in my savings account until needed.
When
I look at my budget with an eye towards trimming costs, all my variable
expenses are fair game. I analyze each and every expense to see what
can be eliminated and what can be reduced to cover only the bare
essentials. One might say, "But I've already cut out all the
extras". Maybe. Maybe not. Depends what one considers to be extras
and what one considers to be essentials. But each expense ought to be
examined and considered.
I think of it as a challenge!
For
me, my budget is truly a spending plan for it gives me the boundaries
within which I am free to spend! For me, that is a truly liberating
concept. I don't have to worry if I spent too much or feel guilty about
how much I spent - it was no more than what I had planned to spend.
My current budget consists of nearly 30 categories (some are sub-categories; for example, under the category of "Utilities", I have subcategories of water/electricity, gas, telephones, internet, etc.) This works for me, because I
like this level of detail.
My categories include
House & Garden (sub-categories: Property Taxes, Home/Earthquake Insurance, Home Maintenance, Garden Care, Household Products),
Utilities (sub-categories: Water & Power, Gas, Telephones, Internet/Cable,
Car (Gas, Insurance, Maintenance, Registration),
Daughter (Tuition/Fees, Text Books,Rent & Utilities, Health Care),
Self (Health Care, Personal),
Groceries,
Pet Care,
Entertainment,
Donations,
Holiday/Gifts,
Taxes & Dues, and the all important "
Miscellaneous"!
What are your financial goals for 2015? How are you planning to meet those goals?
