Budgeting. It’s Not About More, It’s About Less.

Remember, A Penny Saved Is Two Pennies Earned

As I highlighted in my last post, in today’s world, a penny saved is really two pennies earned. That means that budgeting is worth double!

If you wanted to have another $50 to eat out, you would need to earn $100. Half for your pocket and half for Uncle Sam.

Most people I know are worried about their finances, yet only a few take the time to make a sensible plan.  I hope you will find this post a great and practical way to start. The goal is simple. Focus on spending less first rather than earning more. Whether you’re looking to create a personal budget (more on that later) or just getting a better idea on how you are spending money, here are some quick tips to get you thinking.

Budgeting Step 1: Understand Your Net Income, Not Gross

The first step to creating a budget is to understand what you have coming in. It’s easy to work from your total salary, it’s also can create significant risk as you can tend to overestimate what you can afford. Remember to consider areas like Social Security, Medicare, Federal Tax or other withholding like 401K, Employee Stock Purchase Plans. What is left after all deductions (take home pay) is your net income. That is the starting point.

Budgeting Step 2: Track Spending:

It’s important to understand how you are spending your money each month. Whether you want to do this with paper & pen, an Excel workbook or online tools like Mint, it is a critical step and one that you must be committed to. The world of technology has made this much easier, but it is something that will take time up front to set up. I would encourage you to consider both fixed and variable expenses. Fixed expenses are regular expenses that occur each month such as your mortgage, rent, car payment, etc. Its more unlikely that you will be able to cut back on these initially and are important to plan for. Variable expenses are expenses that are more likely to change each month. These are items like your credit car bill, groceries, buying gas or even items like food and entertainment. These are the areas you will find opportunities to cut back immediately. Simply writing down how you are spending your money is a great start for a budget.

Budgeting Step 3: Set Budget Goals. Be Zero Based:

One of the critical steps in a budget is to set goals. The great book by Steven Covey, 7 habits of highly effective people, he talks about ‘start with the end in mind’. For budgeting, it is no different. It is easy to get caught up on the here and now, a $4 coffee or another pair of shoes. I would challenge each of you to really think about goals and start at $0. Build a budget from nothing without using prior year or your current budget. This will help you really get a view as to the most critical expenses.  Also think about goals.  These may be short-term goals such as paying off or paying down your debt or building an emergency fund. Long term goals may include areas like saving for a house or college tuition. Both are important and the dimension to consider is time. I prefer to think about short-term goals in less than a year and long-term goals that are a year or more.

Budgeting Step 4: Create Small Wins & Adjust Habits:

Like most habits, it will take time to create the discipline you need. Most experts will tell you it is somewhere around the 21-day mark. Personally, I believe in creating small wins, create ways for you to feel good about your decisions and see progress. This comes down to haves and wants and being focused.

Personally, over the last 10 years I have saved countless dollars by shaving pennies and I find new opportunities monthly. Whether it’s how we shop for vacations (avoid the mini bar at all costs), think about air travel to monthly variable expenses like our cell phones, cable TV and that daily cup of coffee, it’s really is simple. In the end our lives are no different, in some cases has created parallel habits (e.g. spending more time together vs in front of a TV). It has also saved us thousands of dollars earning at 7% a year. I will share more about tools and technologies I use regularly in upcoming BLOGs.

Budgeting Step 5: Check In:

Life is full of ebbs and flows. It is important that you to regularly check your spending and keep track of progress. We will talk more about this over the coming BLOGs, but I do believe in quarterly check ins. This includes all aspects of life. Who I am as an individual, who I am as a parent and husband and our financial outlook. Like any good organization, it really becomes zero-based budgeting and having a plan.

Step 6: When All Else Fails, Try One Of These

Look, I know that life is busy and you may not have the time to spend the time building a budget that you should. You want to, but it can be overwhelming, tiresome and probably takes more energy than you are willing to commit to it. For those who want the short version, here are 10 of my favorite hacks to save help you spend less. They are not sexy or cool, rather practical ways to save money that I personally use.

Try generic brands and buy in bulk. Shop at a warehouse club or discount store to find lower prices. Buy in bulk for items you use a lot and try generic store brands (e.g. Kirkland vs Tide or Grey Goose)

Cut your cable. Slim down to basic channels and stream free or use services like Netflix, Hulu or even your XBOX or PlayStation console for movies and content. You can keep up on most topics online or thru their apps.

Invest in technology. Install a programmable thermostat to save money on cooling and heating costs when you are not home. You may also consider motion lights for areas like pantries, bathrooms or outdoor lights.

Do a movie in. Do movie and popcorn at home vs a night out at the movies. Try renting from your cable company or look for new releases and Netflix and make a night out of it. You can make a bag of popcorn for less than $2 and it costs $8 at your local theater. Easy money!

Shop selectively and be patient. Shop at discount stores and look for great deals at garage sales, or the goodwill (our personal favorite). Only shop the clearance racks when you are shopping. There are always great deals when you are careful and planful.

Crock pot it up. One of the best ways to save money as a family is to make dinner at home. I know it is the last thing you want to do after a 10 hour day, but throw it in a crock pot, set it on low and forget about it. Nothing better than a home cooked meal when you arrive home. Fresh, yummy and for pennies on the dollar.

Automate your investing. Look for ways to save additional dollars by using automatic payment or transfer services and find ways to round up your investments. Even 1% more adds up.

Maintenance pays off. Stay up on your auto and home maintenance. Regular maintenance on items like your air filter (both car and home) can save you 7% or more on gasoline or heating costs. One leaky faucet can cost you hundreds of gallons a year in wasted water.

Go green. Install energy efficient light bulbs wherever you can. Yes, they do cost more up front, but they use significantly less energy than a traditional bulb. Popular choices are CFLs (compact fluorescent light bulbs) and LED (light emitting diodes) light bulbs. They continue to get cheaper by the month and the savings adds up.

Pack your lunch. We all love eating out at the endless food choices and restaurants in your local area. They are yummy but also expensive. Give up the lunch out with the boys (or girls) and brown bag it from home. Find a way to pack your lunch a few more days a week versus eating out.

Remember that life is a game never won or lost, only played.