Any budget is better than no budget but most family budgets severely lack some critically important elements. Most every budget we have seen comes with generic categories that don’t have much meaning. Such as, Transportation, Household, Personal, etc. These types of categories don’t really serve a useful purpose.
We recommend four specific spending categories. All of your family spending will fall under one of these categories below (Top Priorities, Debt Payments, Monthly Bills, On-The-Go). You can then add as many sub-categories or envelopes as needed under each of these main categories.
The reason we recommend these four specific categories is because the money/payments need to be managed differently in each one. Below is an explanation to help you understand this better.
Recommended Budget Categories:
Top Priorities: Most budgets lack prioritization! What good is a budget to you if you don’t use it to prioritize? Your top priorities come off the top, the first spending you do after you receive your income. Your top priorities should include “paying yourself first” or in other words “savings”. It would also include charitable donations that you make on a regular basis.
We will be talking a lot more on the subject of saving/investing money but for now your most important savings goal should be to establish an emergency fund of at least 3 months of income. This savings transaction should be setup to be automatic. For example, automatic payroll withholdings or automated bank transfers.
Debts Payments: Do not mix non-debt bills with your debt accounts. A debt is something with a balance that you are making regular payments on but it can and will be completely paid off and gone from your life at some point. Not to be confused or mixed with monthly bills or other monthly expenses. You should include all of your debt in this category regardless of the type of debt. For example, your mortgage, auto loans, student loans, credit cards, medical bills and any other debt that has a balance that can be completely paid off and gone.
Your debts should be treated differently than other monthly spending because with debt you are losing more money than you may realize to interest payments. And it also prevents you from adequately saving and building up a cash reserve. The longer you carry the debt the more it costs you. Saving you interest and time is what we specialize in at MoneyPark.
Most people have 30 years or more of debt payments hanging over their heads which will cost them literally a fortune in interest payments over their life time. With our strategies and service we help our clients to be completely debt free in about 9 to12 years depending upon their specific situation. We recommend that you receive our Free Analysis Report so you can better evaluate and explore your options.
Monthly Bills: This category is for all routine non-debt monthly bills like: Insurance payments, rent payments, dues, subscriptions, cell phone bills, electric bills, gas bills, etc. These types of bills are usually paid once a month where you pay them online or mail in a check. The money is managed uniquely because they are routine, and monthly. They are expenses and not “debts” If you end one of the services such as your phone service the recurring expense goes away. The amount you will need to plan for in this category is very predictable and easy to budget.
This category is for all spending you will do when you are out of
the house and on-the-go. For example, buying Groceries, Clothing, Hair Cuts, Dining out, etc.
For greater ease and control with this category you may want to try using On-the-Go Cash Envelopes. Old fashion spending envelopes are very effective. Once you have your monthly spending plan (budget) determined you take regular envelopes and label each one, “Groceries”, “Entertainment”, “Misc” etc. Then you put the cash in each envelope. When the cash is gone it is gone. You can also write notes on the outside of the envelope if needed and also use them to hold receipts at the time of purchase so you can keep good records.
As you consider improving the way you budget your money please don’t feel overwhelmed. It is a process and it will get easier over time. But great things can be accomplished with a little planning and strategy. You can achieve financial peace! You can put a stop to paying interest throughout your life! You can start earning interest and watch your nest egg grow!
You must have specific goals and a plan of action. Zig Ziglar said: “If you aim at nothing, you will hit it every time”