Thursday, October 21, 2010

Budgeting Basics

I know what you are thinking. 
"What a boring topic.  This is not going to be fun!"
Maybe you are right.  Fun may not be the first thing that comes to mind when you think about sitting down and really examining your finances.  It certainly wasn't for me.  Until last night. 
We have been talking about have a couple hour sit down and really digging into what's going on with our money.  Here's what we knew before the sit down last night: 1). We make money that gets automatically deposited into our acconts.  2). We spend money.
Deep, huh?
STEP 1:  Monday night I took our bank statements and categorized each and every transaction during the last 30 days.  My categories included:
A= ATM withdrawls
C= Credit card payments
F= Fuel, Car Pmts, Maintenance
G= Groceries
H= Household expenses
I= Insurance expense
M= Mortgage
R= Recreational Spending
Step 2:  I totalled all of that and compared it to what we bring in for one month.  That told us how much "cushion" we would have, or how much we should be transferring to savings. 
Step 3:  We determined what we should be spending in each of these categories.  This allowed us to make a goal for our savings contribution each month. 
Step 4:  Look for ways to reduce expenses, increase savings contribution.  Based on the expenditures that we made vs. what we thought we should have spent we determined that by paying off loans early we could make the biggest impact and that impact would come VERY soon.  How are we going to pay off loans early?  Well, we know we aren't going to get raises that big when we go into work tomorrow so we had to think of other ways.  We have some pretty liquid assets that we are ready to get rid of so that is where we are going to free up dollars.  We ran a couple of what if scenarios month by month using the logic that as we free up cash we would pay off the loan with the smallest remaining balance.  Once we pay off one we take the payment that we were making (on the now paid off loan) and apply that to the next lowest remaining balance.  You get the idea.  Keep paying off and "rolling over" payments and voila!  Before you know it you are debt free! 
Here is where it gets fun.  We laid that all out month to month to month and we will pay both of our vehicles off over a year early!  See ya, interest! 
I will admit that I did not look forward to this uncovering of where our money goes.  I know I don't pack our lunches everyday and I know that eating out is bad for your wallett.  Not to mention my waist line!  Hence, the P90X starting again tomorrow!  But we were shocked at just how much the eating out was costing.  We had no idea!  I'm a great cook, there is NO reason that I shouldn't be bringing left overs to work for lunches.  All in all the money talk went really well.  You know money is the #1 reason couples fight so I'm glad we could have such a relaxed and honest talk about our dinero. 
I definitely encourage you to be honest with yourself and really look at where you are spending your money.  You may be pleasantly surprised our may not be.  Either way you won't be guessing.  You will know for certain that you are financially healthy! 

Cheers to Health and Du(ing)Better!

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