Budget or Spending Plan. Whichever you decide to call it, is vital to the Get Outta Debt experience. At first, we called it a Pain. Then a Budget. After having problems with the ‘B’ word, we took to Dave Ramsey’s term: A Spending Plan. When combined with the goal of getting out of debt, and the commitment to achieving that goal, the Spending Plan tells your money where to go.
Before we got on the Spending Plan, we really didn’t keep track too well on what we spent out money (or credit cards) on. When we first got married, and I was making very little, we would consult each other if we wanted to spend more than $20. Then as we increased our earnings and got the credit cards, we lost focus. Fast forward 5 years, we recognized that we might be a little out of control and decided to see a Credit Counseling company. The good news was they didn’t recommend that we get on a DRP (Debt Reduction Plan), but the process of getting our facts together, helped us form our first ‘Budget’.
Set Your Savings Goals
Why do you want to save? This portion is just like any journey. You want to know where you are going and the Spending Plan is like your map to get there. Our exercise showed us the beginning of our journey. Our goal then was to buy a house. So, the B-word then, helped us achieve that goal.
Starting out on your journey, you need to know where you are and where you want to go.
- Create an Emergency Fund?
- Pay off a car or Student Loan?
- Save for a house? A vacation?
Make Room in Your Budget
Once you’ve started your budget, and determined your necessities, it’s time to see what you can cut back in order to meet the goals above a little faster. Do you really need the Premium Cable package? Or can you scale it back? With the variety of online options, you’re able to get a great deal of entertainment on cheaper services like Hulu, NetFlix, Amazon Prime and several others.
How about learning to cook more and decrease on the restaurant dining? Do you shop with a grocery list, or just go in an ‘wing it’? Make a list and bring cash. Studies have shown that people who purchase groceries, food, etc with a Credit card tend to spend more. Combined with the list and some discipline, using Cash only can really help keeping you from going overboard.
Set Up the Right Savings Plan
Depending upon your goals, there are a number of methods to help stick to your plans.
Fortunately, Retirement accounts (IRAs, 401(k), 403(b), etc) are fairly difficult to tap into. It’s not like you can go to the ATM and grab a few thousand dollars! Whatever amount you can fit into your spending plan, include the Retirement. Learn from my mistakes.
If you have kids or plan to, setting up a 529 plan and using Compound Interest over time, is going to be your best bet for helping your children pay for college. Of course, this doesn’t include scholarships!
We currently have 2 separate Emergency Funds. One with our local Credit Union, where we can tap into it easily if needed (fortunately we haven’t needed this) and another with ING Direct. This one takes a little more effort as the transfer takes a few days. It’s more of a ‘Long Term’ Emergency Fund. If it seems like the Dishwasher is about to go bust, or some
Automate and Manage Your Savings
In all of your savings, automate whenever possible. Direct deposit is the best route to go. Most companies will allow you to split your paycheck and deposit money into multiple accounts. Currently, we put some into a Christmas/Goal Account, 401(k), Emergency Fund and of course, Primary Checking.
We automate further by setting up scheduled recurring payments into our ‘allowance’ funds. These other accounts are linked in our Credit Union account and we are better able to limit what we spend by tapping into our Savings when we want to buy something for ourselves. We’ve raised our ‘check with the other’ limit over the years above the original $20. But not by much! Having our own ‘Allowance’ amounts let’s us have a little ‘fun’ money that we control.
And finally, tying this all together is using Quicken for managing the finances. I’d written previously that Quicken 2013 is better enabled for Mobile transactions. Using Quicken’s budgeting feature gives us a better day-to-day view of where our money sits and what we’re spending.
Come back soon and we’ll have a few more items on our Financial Resources page that will include some spreadsheets used for Budgeting.. or Spending Plans.. or ‘B’ Word!