Frugal Mom Advice | Budget for Moms | Making a Budget

Taking Stock Financially - Budget Time

There are a few steps that a person needs to go through
in order to figure out what they need to do in order to
live a more frugal life. It’s time to pull everything
together and establish where you are financially.

This is an important step when it comes to establishing
a more frugal life. This isn’t a step that you skip! Take the
time to read over how to determine your financial
stability so you can begin your new life. You will feel a
lot better once you know where you stand as far as your
finances go. There are three steps to this process:
determine your financial health, create a budget and set
financial goals.

Determining your financial health can be a simple
process or a difficult task, depending on how much you
have to work with. It’s best to start with a clean slate,
gathering all relevant information concerning your
expenses and income and using the following procedure
to find out where you stand.

To determine your financial health, get a piece of paper
and pen or pencil and have a seat. Make sure all your
papers and information that you might need is handy.
Make two columns on the piece of paper, one entitled
“Income” and the other labeled “Expenses.” Draw a line
between the two so you won’t confuse any numbers.

Under the “Income” column, write down all incoming
cash that you have, your paycheck for example or if you
own rental properties, write down the income from that.
Also, if you have weekly, monthly or yearly income from
savings accounts, IRA’s, CD’s, etc. write that
information down as well. Total it up on a monthly basis
if you can and then a yearly basis as well.

Under the “Expenses” column, write down all your
outgoing monies. Electricity bill, rent or mortgage,
cable, telephone, and credit cards are all examples of
expenses. You’ll need to calculate this on a monthly
basis, but also a yearly basis. You should also write
down somewhere how much you owe in total on your
house or car if you have those.

The purpose of this is for you to get a look at how much
you have coming in each month and how much you have
going out. If you have more money going out each
month than in, there’s a problem. If your income is more
than your expenses, then you are on the right track. The
question is if your income is more than your expenses,
what is happening with the extra cash?

For most, honestly, their expenses are going to be larger
than their income yet somehow they keep living the high
life even though they can’t afford it. This is due to credit
card companies being very gracious and extending credit
to those who really don’t need it.

Also, if some people find themselves short one month,
they won’t pay something that month and then they get
further into debt because they owe back payments. If
that’s the case for you, the next two steps will help to
remedy that problem.

Your next goal is to create a budget. This does sound
scary, but it is something that can be done and followed
as long as you are willing to make changes and follow
through with it and not veer off in the opposite
direction. There are several ways to create a budget,
some use paper and pencil; others use computer
programs, and therefore, whichever process you are
comfortable with is what you should go with.

Let us begin with plain paper and a pencil. Lined paper
is best just to keep things neat and tidy. It is
recommended that you get a spiral notebook so you can
keep track of all your budgets for each month or every
two weeks. Start off by looking at how often you get
paid. As an example, let’s say that you earn a check
twice a month. For simplicity’s sake, you have a salaried
job where you earn the exact same amount in each
check.

Make sure that you have your other paper listing all
your expenses handy. You’ll need that as a reference. To
start, write at the top of the paper which check this is. If
you get paid on the first of the month and the fifteenth,
write the month, date and year at the top. After the
date, probably right underneath the date and a few lines
down, write how much your check is.

Now we will be deciding which check you need to pay
certain bills out of. Also, we will work on helping to
divide up some monthly expenses so they aren’t all
coming out of one check. You are going to have a
column of things that have to be paid out of this check
or items that you will be placing in your savings to pay
later in the month.

You’ll need to look at your expenses. Look at the due
dates for your bills and rent and car payments. Take
your rent or mortgage payment first. Divide that total
amount in two. Write down “Rent” and then the
amount a few lines below your income.

If you have a car payment, take that amount and divide
it by two as well. These are two expenses that most
people have that are paid once a month and they are the
statistically the largest expenses a person has.

One objective in living frugally is learning how to save
your money and figure out ways to earn extra money.
This is one place where you can earn a few extra dollars.
By taking half of your rent or half of your car payment
and placing it in savings and leaving it there until you
need it, you can earn interest on the money.

Most savings account do not earn much, but if you are
able to get a month or so ahead, you can start earning a
dividend each month. But that topic will be discussed in
more detail later.

Once you have those two items down, take a look at all
your due dates. Bills need to be paid on time or early,
most companies appreciate an early payment and it also
helps in the long run to have on time or early payments.

As an example, if the electricity and phone bills are due
on the tenth of the month, you will need to pay for them
out of the first of the month check. These are two bills
that tend to fluctuate, so take the last five or six
statements that you have, add up all the totals due and
divide by the number of statements to get an average.
This is the amount that you need to write down for the
payment amount.

Do this with any bills that are due before the middle of
the month. These are the smaller bills, if you do have
other large payments due once a month, these will need
to be treated like the mortgage or a car payment.

Once you’ve written these down, don’t forget to budget
gasoline and groceries and it’s good to put aside some
money for eating out or the movies. This is usually just
titled “Entertainment.” Now that those items are
written down, you need to total up the amount of
expenses you have and compare those to your total
income for that pay period. You want to make sure that
you have extra money leftover. If you don’t, hang on and
don’t panic. You’ve only done one pay period.

Do this exact same procedure for your next pay period.
You’ll have the other half of the rent or mortgage and
the other half of the car payment, but you’ll also have a
different set of bills that are due.

You want to make sure that you set your budget up to
where you will have extra money leftover at the end of
the pay period. If there are problems achieving this,
there are several things that need to be looked at. Are
you able to pay for one smaller bill in a different pay
period? You can call the phone company and request to
have your due date changed if that helps you out.

The main goal in creating your budget is to make sure
your income is covering your expenses. If your expenses
are larger than your income, then expenses will have to
be cut somehow. You might have to get rid of the digital
cable and just have regular cable for a few months until
you can catch up.

You might also have to change your cell phone plan in
order to lower your monthly bill. This is not something
that can be done in an hour or two. It might take a few
days to establish a budget that you believe you can live
with and follow through with. If you create a budget
and know you will not follow it then you are wasting
your time. Take your time to think through it all.

Once you’ve created your budget, it’s time to set goals
for your finances. You wrote down earlier how much you
had left to pay on your vehicle. That amount might be
$10,000 and right now, you are paying $200 a month for
a car payment.

One financial goal might be to pay off the loan in three
years instead of the four that are left. How can that goal
be reached? You have created your budget and realize
that you have $300 extra each pay period after all the
bills are paid and the car has been filled with gas and
groceries bought and you rented a few movies on Friday
night.

A goal would be to take the $300 and put it into a
savings account and let it grow and earn interest. After
six months, you would have an extra $3,600 plus the
interest. For example, a savings account earning 2%
interest each month would earn you a minimum of $72
extra after six months.

Make your goal to take the $3,672 and make one lump
payment on the car loan. After six months plus the lump
sum, you have paid off half of the $10,000 owed to the
loan company. After another six months, the entire car
could be paid off three years earlier than you wanted it
to.

Using the above as an example, look around for other
financial goals. Possibly you have credit cards to be paid
off. Perhaps you are more concerned about paying those
off than the car or your house.

Take a look at your extra money that you are putting
back and determine what you’d like to do with. If it’s
not bills that you want to pay off, but maybe you’d like
to go on a vacation or world cruise.

It is very feasible to save the money necessary to do
these activities by working with your budget and
determining where you can cut expenses in order to
achieve these goals. It is also helpful to type or write the
goals out and post them where you will see them most
often. This keeps a person on track financially.

Remember to follow these steps and take some time to
figure out exactly what you want to do. If you’re married
or have others to think about when creating the budget
and working toward financial goals, let everyone
interact and have a say in what is going on. If everyone
is in on the plan, then the goals will be more reachable if
you are going at it alone.