Budget Buddies

Over the past week, I've shared some budgeting techniques with you. Since budgets are back in style, this means you're at the cutting edge of the money and finance world. And like working out is easier with a friend, so is budgeting.

Form a partnership with a friend or family member to share your budgeting tips and knowledge, and to hold each other accountable for your actions. It's also a great form of support. If a partnership isn't enough, consider forming a group. Meet once a week for coffee at a group member's home.

Change for the Good

Over the past few days we've been talking about why you need a budget, and keeping track of where your money is going--all in an effort to figure out how you can reach your goal. Now it's time to institute some changes in your spending habits to help you do just that.

1. Go line by line on your expense sheet. Highlight or somehow mark items that are not necessary. Is it necessary to spend $20 per week on coffee from you local coffee shop? What about the $30 trips to the DVD store? Probably not.

2. Once you slash out spending that isn't necessary, start to look for areas where you can cut back. For example, do you need a home phone with the complete package when everyone calls you on your cell phone, and you always call them using your cell phone too? You have 800 channels on TV, but only watch about a dozen of them? Is it time for a smaller package?

3. Trade in your credit and debit for cold hard cash. You probably wound up in credit card debt, or in an unknowing state of where your money is going because of credit and debit cards. Start using cash instead of credit and debit. That means if you don't have enough cash to buy it, then don't.

Now add up all of your savings and see how much money you have to put toward your goal.

Figure out Where Your Money Should be Going

You may have been shocked out how much money you were spending on certain aspects of your life. And maybe you don't know what you should be spending on certain areas to be shocked at how much your spending is over budget.

So here's how your spending should break down. And by the way, this is on your net income, not gross.

35% Housing
15% Transportation
15% Debt repayment
10% Savings
25% Clothing, travel, health care, entertainment, etc.

Next, we'll figure out how to make the necessary changes to your spending habits to reallocate the funds the ways they should be getting spent.

Where is My Money Going?

Yesterday, you answered the question of why you need a budget--setting your budgeting goal. With budgets, you have to know where you've been to get where you're going. Today, we're going to figure out where all of your money is going. You may be surprised what you discover!

There are a couple of different ways you can go with this step. I'll get you started, but figure out the best way for you.

The notebook method
Keep a small notebook with you at all times. Record every purchase you make or every bill you pay, no matter how small. Keep your transactions in your notebook for at least one month. At the end of the month, tally your costs and take a good look at what you're pending your money on.

Receipts, meet envelope
You can also gather your receipts from each purchase and place them in an envelope over the month. At the end of the month, you can sort the receipts by purchase type and do the math to see where you're spending your funds.

Automate it
Some credit card companies do it for you, but there are also programs you can use to download your credit card and bank statements. The program then categorizes your spending for you. Geezeo and Mint are two online programs that allow you to track your spending for free!

At the end of this exercise you'll have a much better handle on what you're spending your money on. Then, you can figure out how to make the necessary changes to reach your goal.

Budgets are Back in Style

Gone are the days when your friends and family make fun of you for being on a budget. It's a sign of the times that more and more individuals and families are creating budgets and sticking to them. Over the next week, I'll be covering various aspects of the budget.

So, let's get started.

The first step to bringing back to the budget is to set your goals.

Ask yourself, why do I need to budget? Is it because you're tired of living paycheck to paycheck? Is it because you're in credit card debt up to your ears? Is it because you recently lost your job and have to stretch your severance pay until you land another job? Are you trying to save for your child's college education?

The answer to this question is your goal. See, that wasn't so bad was it?

Tomorrow, figure out where your money is going.