Budgeting blog: Start off 2009 the right way by developing a budget

[Laura M. Rodebaugh]

A new year brings new possibilities and new beginnings. With 2008 behind us, this is an opportunity for a fresh start. Each new year, many people make new year's resolutions, which commonly include intentions to eat right or start an exercise program. These resolutions often don't last beyond the month of January. Sure, we all start off with the best of intentions, but life happens and usually that means our new year's resolutions quickly disappear. At this time of making new year's resolutions, I encourage people to make a commitment (notice I did not say "resolution") to get their financial situation in order. It's true that I am a financial planner by trade, but I have always been a very financially aware and frugal individual by nature. Paying attention to your financial situation, staying on top of things, and just taking a few simple steps to ensure the best possible outcome will prove to be more beneficial than you might ever imagine. There's no question that 2008 has been an extremely rough year and unfortunately we're not yet out of the woods. We've had one of the most challenging years in history, with the economy in recession, the stock markets tumbling, and millions of people around the globe affected by this downturn.
It's always important to be budget-conscious, doing the best you can with what you have. But during times like these, it's even more important to be aware of your spending and saving patterns. Having a good understanding of your cash flow (money that's coming to you as income and money that's being spent) is one of the most fundamental rules of good financial planning.
As we enter 2009, do yourself a favor and dedicate some time to your financial situation. You may find some hidden opportunities as well as some easy things that you can improve. Develop a budget. Start by recording everything you spend for a month. Whether it's for necessities (such as utility bills, groceries or housing) or discretionary spending (such as entertainment, dining out, or vacations), write out a detailed record of all your monthly expenses. Then compare this to your monthly income. Many people often struggle with money simply because they don't know where or how they are spending money. Recording your monthly expenses can really open your eyes to what you're spending and you may find some quick and easy ways to cut back if necessary. People are often surprised at how quickly their discretionary expenses can add up. For example, if you go out to lunch 5 days per week and spend an average of $7 per day, that amounts to $35 per week or $1820 per year. Consider taking your lunch each day, or even just cutting back to one or two days of lunching out per week. And what about that fancy latte or cup of coffee that you have to have every day before work? It probably costs at least $4 or $5. This may not seem like a lot of money when you pay the cashier each day, but this also adds up over time. On a yearly basis, you may spend well over $1000 to have that caffeine boost in the morning. If you enjoy your coffee, consider making your own at home or drinking coffee from your company's pot, which is usually free. Other discretionary spending could be cut down as well. Instead of going to the movie theatre, consider renting a DVD and watching it at home ($9 versus about $3-4). When spending time with friends or family, suggest that you go to a restaurant that might be $15 per meal instead of $50. When shopping, buy only the things you need instead of the things you want. You need to buy groceries, but you probably don't need to buy that nice sweater or that flatscreen television. Cutting unnecessary services or products helps too. Maybe there's a magazine subscription you could cancel if you don't regularly read it, or you could consider a cheaper cable/internet package. If you have any big purchases that you've been thinking about, you might want to temporarily delay them. Unless you really need new furniture, it may not be the best time to buy it. And lastly, if credit cards cause you too much trouble, then pay them off and cut them up. Paying for things in cash has its advantages. When you actually see the money leaving your hands, you'll probably be more apt to pay close attention to where it's going.
This may all seem very overwhelming to some people, but it's really not. Just writing down your monthly expenses and monthly income will allow you to see everything in black and white. Sit down and figure out exactly where you stand. How much money do you owe? How much money do you currently save or need to save? How much money do you spend each month? Once you know all of these things, you can start to put your budget together. Perhaps you start slow, cutting down or cutting back little expenses here and there. You may be surprised at how quickly you start accumulating more and more money that's left over after you pay your bills. You can use some of this money to pay off debts. Then you can start to save more, which is the whole point of the exercise. Save more, spend less. And when you put money in savings, keep it there. Forget about it. It's there if you need it in case of emergencies, but don't go on a shopping spree and drain your savings.
The relief is almost instant when you develop and maintain a budget. You feel less pressure because you're not living paycheck to paycheck. You feel confident that you're saving for your future. If your car needs a repair, you don't have to borrow money or charge the credit card to take care of it. You could also use some of your savings for a major purchase at some point, such as a down payment on a home or a car.
So, I will end this budgeting blog by saying again: Make a commitment to review and record your monthly income and expenses. Develop a budget. Stick to it. And not just for the first month or two of the year. 2009 will bring opportunities to those who choose to take advantage. Don't put it off or say you'll do it when things slow down, because we all know that life doesn't slow down. It may be one of the most beneficial things you've ever done for yourself. You deserve it - you work hard for your money and you can make the best of your situation.