Your Budget: Sweat The Small Stuff? (Part 1)

How often do you see articles containing money saving tips? Make dinner more often and eat out less, rent movies rather than going out, bring lunch to work rather than visit a restaurant, take advantage of coupons, and brew your coffee rather than driving-through Starbucks.

Are these tips worthwhile? If we spare the $8 expense of a lunch five days per week, 50 weeks per year, we could save $2,000 - nothing to scoff at! However, what's the cost of these savings? Eating at our desk everyday removes our ability to get outside and away from our work for that important hour, and prevents us from spending time, talking to, and laughing with friends. Is there a better way? According to a new study (http://www.bls.gov/news.release/cesmy.nr0.htm) released by the Department of Labor, the average U.S household earns $65,132 per year before taxes, and spends an average of $50,631 on annual expenditures (excluding taxes and savings). Of that spending, $20,093, or 39.7%, goes towards housing expenses.

Additionally, $11,211, another 22.1%, goes towards transportation and automobiles. Combined, those elements make up 61.8% of the average household's spending! By comparison, only $10,835, or 21.4%, of our spending goes toward food, apparel and services, and entertainment combined. If we are going to explore ways to reduce spending, shouldn't we start with the elements that are costing us the most?  Let's look at that in Part 2.

Question for the Reader: Where do you suspect you can cut for the most savings?

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Creating a Realistic Budget - Conclusion

Budgeting -- ooh, what a scary word! If you want to frighten someone whose finances are out of control, suggest that they tally up their expenses on a piece of paper. We all understand the value of such an exercise, but when it comes to the practicality of putting a budget together, we get cold feet. Budgeting doesn't have to be so painful, when you have a systematic series of steps to follow.

Visit if Tip 1, Tip 2, Tip 3, Tip 4 and Tip 5 if you have not yet read it.

WHAT'S THE VERDICT?
So, comparing income to expenses, how does it look? If you came out in the black, congratulations! How much do you have left over? Regardless of how small or large the amount is, start stashing it away into savings and investments! Your choice of how to proceed will depend on your financial goals -- investing for retirement will involve less liquidity and more risk than just saving for next year's vacation. The main thing to remember is that you should build your savings and investments into your budget just like a bill -- and take care of these long-term responsibilities FIRST, before other costs. That's the secret to good financial management.

Now, if you ended up in the red, we need to talk. The first step is to look at spending which can be reduced or even eliminated. Start by examining those "spending leaks" -- if they give you pleasure and satisfaction, dandy. Certainly late fees and interest charges don't fall into this category! But you can still overdo a good thing.
Ask yourself if eating out 4 times a week gives you 4 times more pleasure than doing it just once. And could you get as much pleasure if you cooked a good homemade meal? Is the ridiculous mortgage on that 10,000 square foot house worth it? Or could you be just as happy (or even happier with less financial stress) in a place half the size? Also look for convenience expenses -- things that we spend money on because we are overwhelmed, too busy, or just worn out.

Perhaps by re-evaluating how you use your time, you might discover that many of these expenses are just symptoms of misplaced priorities. When you arrive at a place where all of your spending decisions are DELIBERATE ones, you will find yourself several steps and quite a few dollars closer to a balanced budget that allows you to reach all of your financial goals.

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Creating a Realistic Budget - Tip 5

Budgeting -- ooh, what a scary word! If you want to frighten someone whose finances are out of control, suggest that they tally up their expenses on a piece of paper. We all understand the value of such an exercise, but when it comes to the practicality of putting a budget together, we get cold feet. Budgeting doesn't have to be so painful, when you have a systematic series of steps to follow.

Visit if Tip 1, Tip 2, Tip 3 and Tip 4 if you have not yet read it.

DON'T FORGET YOUR DEBTS
It's also important that you have some idea of your liabilities -- debts that still have to be repaid. Did you figure these payments in with your monthly expenses? If you are only counting the minimum monthly payment, you will never pay your debts off. You may not be able to do it right now -- but after we get your budget in order, the goal is to pay at least double the minimum amount on at least one of your liabilities each month. You should start with the credit card or loan that has the highest interest rate -- then tackle the next highest after the first debt is paid off. And if you can afford to pay more than double, go for it. You aren't really free to start working on other financial goals until you know you are debt free.

TALLY UP YOUR INCOME
Do you really know how much you make? The tendency is to quote whatever is printed on your employment contract -- to say, "I make _____ a year." But after taxes and Social Security and any other items that are deducted from your check, what are you actually bringing home? Take a minute to really examine all of your sources of income and calculate an honest total -- you can't have a realistic budget without it!

www.HomesInTransition.com

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