Steps to Building a Budget

Make creating your budget an event! Play your favorite CDs. If you love rock and roll, put on some Rolling Stones and roll right through your budget planning. If you like R&B, put on Destiny’s Child and get organized to pay your bills. Jazz lovers, let Coltrane help you speed your way through your financial planning. Once you have the music, make yourself a little cocktail. There’s nothing like a cocktail to help you get through any financial-based depression.

• Print out or ask your bank for your statements from the last three months. Gross salary is great, but you need to know exactly how much is put into your bank account after taxes (net earnings).
• Gather all credit card bills from the past three months, organizing them in order of high to low interest rate.
• When developing your budget, make sure to include all credit card purchases. Credit card money is real money.

Tracking your budget is much easier if you use a spreadsheet program like Microsoft Excel or a personal financial program like Quicken or QuickBooks. You can purchase a version of the software at any Best Buy or Circuit City store, or you can buy online at eBay.com and save a few bucks (make sure it is a legal copy). Either way, these programs make it easier to manage all your accounts in one place. This is important because it allows you to see what kind of a dent you are making, if any, in your debt. Also, it allows you to link your budget to your bank account.

The Budget Fashionista explains how to save when you really want to spend.

One of the hardest lessons for a fashionista transitioning into a budget fashionista to learn is how to save when you really want to spend. After a few years of marriage, my husband and I decided to build a little equity by purchasing our first house, which meant we were operating on a strict budget, something that wasn’t exactly my strong suit at the time. What should have been a pretty easy task turned into a battle of epic proportions: Equity vs. Armani. Tax breaks vs. Lenox plates. A 20 percent down payment vs. 20 percent off at Bloomingdale’s.

Whether you’re saving for a house, a new car, or a much-needed vacation, the tips below will help you curb your spending and increase your savings:

• Place an address label over debit and credit cards with statements to remind you of your goal. Try statements like “What would Suze Orman do?” “Equity is love,” “Closet vs. house,” or my personal favorite, “You ain’t Oprah.” Every time you reach into your wallet to use the card, your saying will remind you not to spend.
• Launder your money. At the beginning of each week take out all your spending money—I mean everything in cash (including grocery money)—and hide your wallet in your dirty clothes hamper. When it’s time to you do your weekly laundry, it’s time to take out more spending money.
• Window-shop from a distance. Drive to a mall that is very far from your home to go shopping and bring only $10 in cash with you.
• Shop with an annoyingly cheap friend. This is a particularly effective approach if the person is the type of cheapie who makes comments like “That costs only $2 to make” and sighs every time you select something from the racks.
• Freeze your credit card. This old savings trick really does work, but make sure you won’t need the credit card anytime soon. I once had a very nasty incident thawing out the credit card in the microwave. Let’s just say that credit cards aren’t made of microwavable plastic.

Another way to save money is by saving your spare change. When I was a child, my father would often give me change from his pocket. I used to put this extra money into my Mickey Mouse bank. Although the Mickey Mouse bank is long gone, I continue to put pocket change in a little bank. Yes, I know it sounds corny, but your spare change could fund a pair of new shoes or help lead to an early retirement. At the end of each month lug your growing stash to the bank and deposit it in your shopping savings account to use at your whim. Whatever you don’t use earns additional interest until you do use it.

Source: How To Be A Budget Fashionista by Kathryn Finney

Finance Topic of the Month: Why Is It So Hard To Get Out Of Debt?