Dear Terry and Deborah,
Help me budget! What's the best way to budget for a young
couple?
Anon
Dear Anon,
Thank you for writing. The fact that you are asking this
question puts you ahead of the masses, and I commend your effort. Try this:
think of budgeting as a lifelong way to most efficiently use the money you
earn. Every month you have fixed expenses, discretionary expenses, and savings
or retirement. Fixed expenses include rent or mortgage, health insurance, car
payment and insurance, utilities, food, etc. You do have some control in this
area by renting or buying in a price range that is comfortable for your income.
The same is true for the car you buy. Discretionary expenses include the type
of smart phone you buy (yes, you do need a smart phone), how often you go out
to eat, flat panel TVs, entertainment, travel, etc. This area has the greatest
latitude of spending and is often the undoing of even the most budget-minded
people. Consider the cost, for example, of fluffy coffee drinks and other
beverages and snacks. You also should get into the very important habit of
saving some money every month even if it’s $20 to $50. Work toward having a 3
to 6 month emergency fund account, and don’t spend this money unless it truly
is an emergency. Once you have a comfortable emergency fund, then you can begin
to save for a down payment on a house. Over the next two to three months, try
to save the receipts or record as many expenses as you reasonably can. This
exercise will give you an idea of where your money is going, and based on this,
you can make the appropriate changes in your spending habits. Yes, it does take
a little work and some discipline, but after a while, it will come naturally
once you have a firm grasp of your spending limits. Good luck.
-- Terry
Dear Anon,
Envelopes!! My friends hit on a great idea when they were
just starting out. They put their money into envelopes. They had a very
tangible method of determining whether it was okay to go out to dinner or not.
Of course, that was 30 years ago, so let’s see if this plan can translate to
modern-day.
The difficult part is going to be to look at your finances
honestly and come up with a firm understanding of what is ABSOLUTELY necessary.
You need to be brutally honest with yourselves in order for the budget to work.
Your smart phones make life convenient, but are they ABSOLUTELY NECESSARY? For
most people, they are not. And I’ve heard from more and more people that they
are happily doing without cable television.
My first two bills that I paid when we were starting out
were rent and medical insurance. For you, I’d suggest that you figure out what
are your fixed monthly expenses that never, ever, change and budget around
them.
Groceries can vary, and it’s important to budget at least a
little something to have fun, even if it means a trip to the zoo rather than
movies or clubs. Finding friends who also live frugally takes a lot of the
pressure off of you when planning get-togethers. It’s more fun to go for a hike
in a group!
If you’re willing to go with the envelopes with your grocery
and entertainment money, it could be fun and nostalgic. If you really don’t
like the idea of using cash, consider opening a separate checking account (try
a credit union to avoid fees), and deposit your discretionary funds there. Use
that debit card as your fun card.
I know I’m not saying anything that you haven’t already
heard when I say to not get sucked into credit card debt. It is such a huge
waste of YOUR hard-earned money. Don’t put anything on those darned cards that
you can’t pay off right away!
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