Friday, July 9, 2010

Simple steps toward budgeting can empower you

When I was recently introduced to a friend’s husband, the first words out of his mouth were, “You’re that woman who writes about budgets all the time, right?”“I’ve never been good at that kind of stuff,” he volunteered. Then, as if I might ask him to get out his checkbook register for an impromptu budgeting session, he quickly left.I suppose it’s possible that I might have had spinach in my teeth, but I think talking about budgets made him uncomfortable. That brief exchange reflects two pervasive (and unfortunate) myths about budgeting: 1) Everyone just innately knows how to budget ; and 2) If you aren’t using a budget, you should feel guilty.Rest assured there is no such thing as a “budgeting gene” that skipped you. You don’t have to use complicated forms or be a math whiz to use a budget successfully. What’s more, the last thing a budget should do is create guilt. At its best, a budget is the single most powerful financial tool you have.If you’ve never used a budget, or you’ve given up on using a budget because it has never seemed to work for you, you may not know where to start. If the idea of throwing yourself wholeheartedly into the budgeting process seems overwhelming, you may want to try the baby-step approach.This type of budgeting lets you zero in on a single household expense. Start by reviewing your checkbook register, credit card receipts, or online accounts and calculate your total monthly spending in a specific area. When you’ve got the total amount in front you, you immediately become empowered to decide if you’re happy with your spending. If you aren’t, you can decide how much you want to cut back in that one area.But the purpose of budgeting isn’t simply to cut back. The real power is in reallocating your funds. A budget allows you to take money you’re saving in one area and spend it on things that can make your life better. You might take the extra money and build an emergency fund, pay off a debt, start a vacation fund, or put it towards another financial goal.Even if you already have a working budget, you can use this method to think critically about where your money is going. For example, my husband and I decided to look at what we spent on food last month. We spent $659 on groceries and a whopping (and shocking) $302.27 on eating out. These numbers were skewed because of some unusual family circumstances, so we took a three-month average, which put our total monthly food expenditure between $805.09 and $594.82 for groceries and $211.27 on eating out.Even though our monthly food costs fall within the average levels reported by the USDA (approximately $810 a month for a family of our size), my husband and I agreed we want to spend less on food so we can save for a woodstove. We estimate it will cost about $5,000 for the stove and installation. We’ve already saved roughly half of this, so we need to save an additional $2,500. If we spent half as much on eating out, we could save $105 a month, or $1,260 over the next 12 months.Additionally, if we adjust how we spend our food dollars at the grocery store (making our own baby food instead of buying jarred brands, cutting out prepackaged foods), we can cut our grocery bill by a $110 each month. Such carefully planned cutbacks could empower us to buy a woodstove in less than a year.

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