A Budget for the New Media Age – Part 2

Welcome back, intrepid penny savers! If you did your homework, you should have been familiarizing yourself with spreadsheets and online banking. Now we’re ready to get down to business and start crunching numbers using the tools discussed in Part 1. You should have a neat spreadsheet that lists your account detail for the past few months ready. Now what?

Categorize
Take some time to make a list of expense categories that you will assign to each transaction on your account detail. (Ex: Rent, Utilities, Car, Loan Payments, etc) A good guide is available here. You may find it easier to merge several smaller bills into one heading (for example, cable, power, water and garbage can all go under “Utilities”). Don’t forget to track leisure costs under an entertainment category! Identify which category each transaction falls into by typing the name of that category into the the row of each transaction amount. Once complete, this will enable you to sort the entire list by category, therefore making it very easy to quickly total how much in any given time period you are spending on things like health insurance or car expenses. At the end of this step, you should have an average monthly total spent in each category.

Trim
Once you’re done with categorizing, you can begin to see how much of your money is being spent on nonessential items or services. While you may not balk at an expensive dinner out when you sign the check, looking at how much you spend at restaurants over the course of a month or two may make you think twice about how absolutely necessary these types of purchases are. Look at each of your categories and examine them logically. While certain expenses are fixed, such as rent and insurance payments, there is probably plenty of room to cut back in other areas. Determine which transactions can be cut, and then remove these expenses from your monthly totals for each category.

You’ve Got a Budget!
The monthly total from each category, minus the expenses you trimmed, is your monthly budget. List out all of your categories and the dollar amount you have dedicated to each one. A total of your categorized expenses should be less than the amount of money you earn every month. If it is not, you will need to trim more and total each category again until your expenses are lower than your income. Ideally, you should be saving at least 8% of your income each month and setting it aside for a rainy day.

Drafting a budget isn’t as painful as it used to be, especially when you eliminate a lot of the work that comes with tracking all of your purchases, and sticking to your budget is easier these days as well. Use your online banking system to set up a series of alerts that will notify you of low balances or large purchases hitting your account. Focus on the details to stick to your budget and watch that savings account grow each month.