I've talked about how we budget here and here. But in case you're in a hurry I'll give you a summary. 6.5 years ago Mr. and I decided to take the Dave Ramsey approach to finances, and let me tell you it's changed our life! I wrote about it in depth here, but to sum it up, to get yourself out of debt there are 7 steps: $1000 emergency fund, pay off debt using snowball method, 3-6 months of savings, college savings for kids, pay off home early, build wealth and give. Now that we have that out of the way I'm going to share 3 tips to budget planning.
| ONE |
Don't pay for anything unless you saved for it. Now and days we're all about instant gratification. But that's almost always short term. If you want a new couch, save for it, don't use those 0% finance deals. It's not worth it, it will mean even more when you can pay for it in cash. You know you'll need to buy a new car in X amount of years, save for it each month so when the time comes you'll be able to pay for it in cash. Decide how much you want to spend on a car, when you need to buy the car, divide and that is how much you'll need to save each month. Instead of paying each month towards a car payment, buy a cheap used car and then save what you were paying for a newer car. Point being however you do it, save for what you want. In the end it will mean more when you can buy it in cash and won't have to pay for it for the next 5 years.
Bottom Line: Save for what you want, don't finance, in the end it's more gratifying knowing that it's paid in full then having a monthly statement.
| TWO |
Use a cash system. Decide how much money you want to spend on specific things, such as clothes, entertainment and food. Then take that amount of cash out and spend only cash. It's much harder to spend cash than it is to use a credit card. I know when we did the cash system for food, we would almost always decide to go home for lunch on the weekend, then spend the money, so we could save it for a more special outing. Eventually you will learn how to spend way less on random things when you're actually giving someone your cold hard earned cash. Trust me, it works. Just do it for a few months and see what happens.
Bottom Line: Spending real money instead of using credit cards will make you spend less
| THREE |
Just like in tip #1, you always want to save for things that might happen in the future. For example your car will always need maintenance. Every year you always have car registration and insurance. You know what those numbers are, divide by 12 and that's how much you need to save. Your car is also going to need regular maintenance, i.e. oil changes, new tires, you want to save for that as well. So when it does happen, you're not left scratching your head, wondering where the money is going to come from. You just tap into that maintenance bucket and bam no worries.
Another big one is house maintenance. A good rule of thumb is to save $1 per square foot of house that you own per year. I.E. If you're house is 2000 square feet, you should be saving $2000 a year for house maintenance. We've been in our house for 7 years now and we find this to be true. If we don't use it all that year, then it rolls over to the next year and can go towards a new roof, re-piping your house, leaks, etc., down the line. It's nice when you get a slab leak and need to re-pipe the whole house, that you have savings for this exact thing and don't have to wonder where you're going to get the money, especially during maternity leave and have a 4 week old, true story.
Bottom Line: Save for the future, know that you will have future expenses and save for that.
Let me know in the comments below if you want some more tips and tricks or any other advice!
Now hop on over to Deena's blog to see what she does for budgeting!
Linking up here