The first rule to shopping on a budget is to create a budget. You can't shop on a budget if you don't actually have a budget. I know, you're thinking, "Duh, Meghan!" Well, I have always considered myself a girl on a budget, but there used to be a time when if asked what my shopping budget was, I couldn't give you a number. I know I am not alone.
I have talked before about a couple of my other budget shopping tips - the price per wear rule and the 70/30 rule. But, today we are going to step back and briefly cover step number one - creating a budget. I know for some of you the concept of working with numbers and money is scary or daunting, but it doesn't have to be. Creating a good budget that you can stick to can be easy!
1. Determine your fixed costs - Sit down with all of your monthly bills and figure out your monthly fixed costs going out the door. Fixed costs are items that don't vary month to month, like your mortgage/rent, car payment, insurance, utilities, etc. Microsoft Excel offers free budget templates that you can use to easily drop this information in, along with your monthly income (use your net pay), and start your budget.
2. Evaluate your spending - For at least one month, track every penny that you spend. This is the only way you will truly know how much you are spending. It will also help you create an accurate budget and maintain it. Without an accurate budget, you are much more likely to fail when it comes to sticking to it. This may seem like a lot of work, but it's not. If you are good with Excel, you can simply download your debit/credit card activity into Excel and group and sort items into categories. Even easier, use a money management website like Learnvest or Mint. I prefer Learnvest, but Mint is also great (I will be reviewing both in a later post). With both sites you simply link your account information, and it does all the work for you. I should also mention that they are FREE. You may think you know exactly where your money goes, but even those little purchases, like daily trips to Starbucks, add up over time. Tracking your spending and using a site like Learnvest or Mint allows you to determine where you can cut back in the following months and also gives you an accurate picture of how much you really need to budget for groceries, etc. Justin and I were shocked when we first started tracking our spending. The amount of money we spent on food and entertainment was ridiculous! We have since cut that in half, and I don't even really feel it!
3. Set goals for how much you can save each month - Now that you know your fixed and variable expenses, you need to prioritize your savings. The general rule of thumb is that you should save 10% of your gross pay; however, not everyone may be able to do that, so we need to just save what we can. Choose how you want to prioritize between saving for an emergency fund (six months to a year of expenses), retirement (if you do not have a plan provided by your employer), education (if you have children) and big purchases, such as a down payment on a house, a new car, a vacation or maybe that Tory Burch handbag you've had your eye on. Since you have been tracking your spending, you can also identify areas where you might be able to cut back in order to meet your savings goals.
4. Set up a complete budget - Now, you have all of the key pieces to set up your budget. You can do this using an Excel template or you can also do this using a money management site like Learnvest. Money management sites or software can get rid of some of the grief with their built-in budget-making tools. They create the budget for you!
5. Keep tracking - The best way to maintain your budget is to keep tracking your spending. Using a site like Learnvest or Mint makes it painless. By continuing to track your spending, you are making sure you are staying within your set guidelines. It is also interesting to see how your spending fluctuates each month, and it allows you to make proactive adjustments when necessary, rather than reactive.
6. Set up separate accounts - There are mixed opinions on this, but this is something that has really worked for Justin and me. We have a separate "Bill Pay" checking account where we transfer money to cover all of our fixed expenses each month, plus some cushion. All of our bills are automatically paid out of this account, and we never have to worry about not being able to cover them. We also have multiple savings accounts (such as a "Vacation Fund" and a "Lake House Fund"), where we move a set amount of money to each pay check to save for specific things. When we were engaged, we had the "Wedding Fund." Sure, we have to take some time moving money around each paycheck, but it makes it easy for us to stick to our budget and also appropriately save for practical AND fun things. Once all the appropriate funds are transferred to their accounts, what is left goes to our accounts that are linked to our debit cards (we each have our own), and that is our discretionary spending money! This method really works for us, and makes it easy to manage discretionary spending. Be sure to work with your bank to make sure you aren't paying additional fees for each account.
Tell me - do you have a budget that you maintain? Do you currently track your spending?