Tina Ryan with Bookkeeping Girls provided an excellent presentation on “How to do a Budget”. Most of us may think we know how to budget our finances, but these tips made a lot of sense and are important to those of us that really need to get a handle on our spending or just want to take better control of our business/home finances.
So outlining her tips today, I hope gives you food for thought and a methodology to follow.
Write down everything you spend each day. Do this for a month and you will see exactly where your funds are going. Most times we think the budget is just our household or business expenses, not so. You need to include the “wants” as well, such as starbucks runs, going out to eat, etc. This allows you to see how your expenses stack up against your income.
Track your mileage. This is important due to the IRS getting sticky on tax write off’s for mileage.
Prioritize and Categorize your expenses. Mandatory needs versus non essential expenses. Once we know where the money is going, you can recognize what you really need. Setting up a budget can take 6 months to a year to really see the budget working.
Monthly budget meetings with your spouse. Communication is extremely important. Whether one pays the bills, the other still needs to know what the expense to income ratio truly is.
Always pay yourself. This is something we all would like to do, however, we seem to get caught up in paying for everything else. 10% of your income should go to savings. I know this is easier said than done, but if more people lived by this rule, the less money stress there would be.
Set goals. By setting goals, you are able to save for vacations or material items. The great thing about the goals, is you are able to pay with cash and not credit. Credit gets people in trouble, yet our society pushes a credit based system.
Tina recommended an “envelope system” for cash. The envelope system is basically different label envelopes where you put cash for your goals. For example, you have an envelope for “Blow” funds, an envelope for additional payment for credit card or mortgage, an envelope for clothing, one for vacations, etc. The idea is to save and pay with cash that you have. In my opinion, this is a fantastic idea that I plan to implement.