How Much Should My Grocery Budget Be?

How Much Should My Grocery Budget Be?

You talk about a question without an answer! But, I'm going to try to answer it anyway.

First, when we are talking about setting an exact dollar amount for groceries for each family that asks, that's almost impossible. What we can do is allot a portion (percentage) of our income for food.

There again, you have all of the variables like the size of your family, eating habits, etc. Also, a family with a low income may have to allot a larger percentage of their income toward buying food.

The question I would like to ask you is how much are you spending on groceries per month? I would have to say that most people wouldn't have any idea.

Better yet, how much could you be spending on food? In other words if you are currently spending $600 on food for your family let's try to cut that down to $500 or even $400. But first you will need to know how much you are spending now.

This is going to be a real hassle for a month or two because you will need to keep track of your grocery purchases. All of them!

Now, we can make that a little easier but you will need to have your finances set up a certain way. I always suggest that you only use 4 categories for your budget. These are Housing, Other Bills, Household Expenses and Savings.

Your grocery bill would come under that category of Household expenses. If you have your finances set up this way each member of the family will have an allowance each payday for things like car gas, lunches, parking, snacks, etc. Doing it this way would eliminate the need to keep up with each family member's food spending except for the family pizza night.

All you would have to do is save your grocery receipts for about 30 to 60 days and add them up. This should give you a good idea of how much you spend on a monthly basis for food.

When you have this information it's time to start looking for ways to cut that figure down as low as you can and still provide good nutritious meals for your family.

If I started telling just the ways I know of how to save on groceries, this article would turn into a book. There are
endless ways to cut back on your food spending. The best way to start learning is to search the web. Here are a couple of web sites you can start with:

The Frugal Shopper http://www.thefrugalshopper.com

Money Saving Grocery Tips http://homeparents.about.com/od/groceryshoppingtips/

Grocery Saving Tips http://www.grocerysavingtips.com/

With all of that said, the bottom line is that you need to spend what ever it takes on groceries to survive. In too many cases people will pay their bills out of their grocery budget. This won't work. Water, Food and shelter are the basics. Put them first no matter what your bills are or how many times they call to harass you.

I know you are still looking for a dollar amount for your family. If you pin me down I would have to say about 15% to 20% of your income could be spent on food. For a family making $3000 a month that would mean you would set aside about $450 to $600 for food. This is great unless you have teenagers that go through the kitchen like vacuum cleaners.

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Terry Rigg is the author of Living Within Your Means - The Easy Way http://www.homemoneyhelp.com/ebookadpage.html and editor of the Budget Stretcher web site. Join the thousands of subscribers to The FREE Budget Stretcher Newsletter and get great articles, tips, downloads and a lot of Budget Help by visiting his home page at http://www.homemoneyhelp.com

Biggest Budgeting Blunders

Does your budget never seem to balance the way it should? Are you constantly digging into the savings to make ends meet? If you find that your budget isn't doing the job, then it's time to take a good look at essential components you might be missing or you have not allowed sufficiently for. Some of the biggest budget blunders are . . . . . .

1. Failure to plan for inevitable expenses

We all have irregular expenses that we naively refer to as "unexpected." Come on, is that flat tire really unexpected? Don't you secretly know that these things happen? Have you ever owned a car that did not need repairs or maintenance? If you have, you probably didn't own it long enough. The solution; Start counting on the car breaking down instead of hoping it doesn't! The car isn't the only area we slight in the budget. Do you find yourself hoping and praying that the hot water heater, washer, dryer, or some other major appliance doesn't need to be repaired or, worse yet, replaced. Home maintenance is always a factor in our finances. Even if you rent, you probably have some home related expenses waiting to creep up on you. These are just a couple examples of variable expenses that we often overlook. When you consider the following other categories that could be included in this list, you can see the serious consequences this oversight can have on your budget.

• Property, Auto, Health and Life Insurance if not paid on a monthly schedule. Even if you do pay monthly, you should try to save for a lump payment if at all possible. Most companies charge up to a $3 fee for monthly payment options. It doesn't sound like a lot but, over a years time it's $36 you won't be investing in their cause. I say, it's always best to invest in yourself. Don't you agree? Put the $36 in your savings!
• Taxes - Property, Federal, and State - If you know you will have to pay Uncle Sam, prepare for it. If you value your home or other property investment, prepare for the costs. Don't scramble at the last minute to come up with enough to pay your obligations. It's likely other areas of your budget will suffer greatly, since these expenses have a high priority.
• Clothing - Now, I can wear a piece of clothing 'til you can see through the threads. I work at home, so I only have a few choice pieces for special occasions. I'm a no frills kind of gal. But, I have four kids. Do I expect them to stop growing or somehow not care how they look to their peers? Of course not! But, I'm working on it. Just kidding! I know that they will need more clothes, more shoes, more accessories....etc., etc., etc., etc..... I use every resource available to me to cut down the clothing budget, I know I must account for this expense. It will arise, whether I am prepared or not!
• School Supplies - This is another one you just can't omit if you have kids. You can, however, use some clever money saving techniques and multiple resources to keep this expense to a minimum.
• Pet Care - If you have a pet, you most likely have expenses that come with this beloved family member. Vaccinations, flea control, veterinarian, and food are just a few that come to mind. Again, minimize the costs by using all your resources. Tip: My local county animal shelter gives rabies vaccines for $5. Good for three years if regularly vaccinated. Does yours?
  Gifts - If your friends, family, and kids don't care if they don't get gifts from you, if you've declared war on the holidays, or have a convenient hiding place when these occasions take place, then you can skip this one! I'm guessing most of you are including this one. It's inevitable. My best advice is to set strict limits and be a smart shopper. Seek out the bargains and buy when it's a deal, even if it's months ahead of time.
• Medical - Unless you're lucky enough, or not lucky (depending on how you look at it), to qualify for medical assistance, you undoubtedly have medical expenses over and above the cost of your health insurance; Co-pays for doctors and medicines, over-the-counter medications, dental and eye care expenses. Nope, can't omit it, have to include it. Sorry, it's a must have!
• Vacation - If you have the income, include this one to make planning less stressful. Get inventive if you don't have enough income. You can still have a vacation with limited, or no, travel expenses.

2. No Emergency Fund...

. . .or misconceptions about what warrants an emergency. An emergency is this case should be limited to an unexpected occurrence. No, if you've been listening, having to replace the water pump on your car is not an emergency. A real emergency might include; loss of income, severe illness, or death in the family. Although we all hope such occurrences never happen to us, sometimes we aren't lucky enough to escape these unfortunate events in life. You should try to set aside a specific amount, no matter how little, each month in an emergency fund to eventually equal at least three to six months of your current income.

3. Living Above Your Means.

This is simply spending more than you earn. Unfortunately, this is a direct consequence of budget blunders #1 and #2. When funds are not set aside for variable expenses and emergencies, you will inevitably turn to plastic money (credit cards) to bail out. Spending more than you earn is a sure sign that you're headed for trouble. When you spend future earnings it's like "counting your chickens before the eggs hatch." The long term consequences are usually devastating. It's likely you'll end up in deep debt and eventually have no where to turn except counseling or bankruptcy. Don't let it get that far. Take control of your money. Now!

If you've been making these budget blunders, you're probably exhausted just considering all the work you have to do on your budget. I'm exhausted just writing about it. The sooner you get started, the sooner you'll be on the path to a really successful budget. Add up all your variable expenses and divide by twelve to come up with a monthly amount that you should be setting aside for this expense. Keep these funds separate from your monthly bill fund to avoid dipping into it accidentally. Start with 5-10% of your income to start a savings, or apply to an existing savings, each month for your emergency fund. Make sure your expenses are within your income. If not, start reviewing, eliminating, and reducing those expenses to fit into your income limits. A good budget is like a good friend. It helps keep you strong and steady.

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Resource: Cheryl Johnson is a mother of four helping herself and others become and remain debt free. Publisher of Simple Debt Free Living - A self-help plan, ideas, and resources for debt

The First Step in Budgeting – Track Your Spending

Many people have asked me what is the first step in setting up a personal budget. If you have ever tried to fill out a budget you know it is impossible to do it right unless you know exactly how much you are currently spending and on what. How much do you spend eating out each month? Exactly how much do you spend in gas? Groceries? If you are like me when I started I didn’t even know how much my utilities where every month.

So prepare yourself by tracking every aspect of your spending for one full month. Write down how much you spend on everything. At the end of the month it should add up to exactly your income for the month. Once you do this you can easily fill out a budget worksheet or enter it into a budgeting program. This first step can be difficult if you are not used to doing it. But with a bit of work you will know where you are starting from so that you can get going down the road of taking control of your financial life.

Types Of Spending

Over the years I have talked to many people about personal finances and budgeting. But my neighbor is one of my favorite people to talk about finances. He is a loan officer for a local financial institution and has over 20 years of experience helping people with their finances.

One of our favorite topics is how to choose between “needs” and “wants”. It is an interesting test to ask people what types of things they could group as a need. Grouping wants is fairly easy. But when you ask someone “do you really NEED to spend your money on X” you would be surprised the responses you receive. My neighbor has an easy formula to distinguish between the two and here it is:

“A need is something that you DIE if you don’t have!”

Now this may seem overly simplistic and dramatic. But you would be surprised at how many people think that their “extended cable package with all the movie channel packages” is an absolute need! Or at how many people just HAVE to have that $4 latte and muffin every morning.

As you are creating your budget you will have to make decisions about what are your wants and needs. I am not judging how people should spend their money. I am guilty myself of some “frivolous” spending from time to time. But you need to make sure that your necessities are getting paid for first. And by that I mean not only food, shelter, and clothing but things like saving for my children’s college and saving for my own retirement. After all if I compare a trip to the convenience store every day to my child’s education it is not a hard decision to eliminate that daily Coke and a candy bar(you can send your child to college for a few dollars a day if you start saving early).

In “budgeting lingo” there are two types of spending: discretionary and required. Required spending are the bills that you just have to pay every month. Things like your mortgage or rent, auto fuel, utilities, groceries and monthly memberships. Discretionary spending is those items that you can choose to spend you money on or not each month. Things like clothing, eating out and entertainment. If you are trying to reduce your spending to pay off debts or to increase your investments the discretionary spending areas are usually the first to be analyzed.

Discretionary and required spending can then be split up into 2 additional categories. Periodic and monthly spending. Monthly spending are items that are paid each month, month after month. All the examples I have given so far are monthly expenses. Periodic spending are items that only come up once or twice a year like property taxes, insurance premiums, vacations and holiday expenses.

So as you are creating your budget it helps to group all of your spending into 4 possible categories. 1) Monthly Required, 2) Monthly Discretionary, 3) Periodic Required, and 4) Periodic Discretionary. By placing everything into one of these categories you can more easily plan your monthly expenses while at the same time have a plan for your periodic expenses. After all, I think most people are very good at planning for those expenses that come up every month. People get into debt when those unexpected (or expected) periodic expenses come up like Christmas, car repairs, or emergencies. So get your budget organized and you will be prepared for any expense that may come your way throughout the year.

More on Billpay - Industry Facts

Here are some interesting tid-bits I found on the web today at checkfree.com about billpay. These numbers are impressive and show that if you are not paying your bills online today, you soon will be.

Industry Fast Facts

• CheckFree delivers more than 30 million e-Bills each quarter.
• Online bill payment is fast becoming a mainstream consumer practice, with at least one-third of U.S. households expected to pay bills via the Internet in 2004. (TowerGroup, May 2004)
• By 2007, 65 million U.S. adults will view their bills online. (Gartner, January 2004)
• The practice of electronic bill and invoice presentment are becoming increasingly common. Fully 47 percent of large consumer billers are expected to have an electronic billing application in place this year. (TowerGroup, May 2004)
• In the next five years electronic billing and payment services will grow by nearly 80 percent – nearly doubling the number of U.S. households paying bills online by 2008. (Forrester, November 2003)
• Paying bills online was the fastest growing consumer Web application in 2002, up from fourth in 2000. (Javelin Strategy & Research, April 2003)
• The use of online banking among U.S. consumers will grow from the present rate of 17 percent to 30 percent by 2007. In addition, market penetration will reach 50 percent of consumers in some desirable market segments during the same period. (Gartner, February 2003)

Financial Fitness— It's not about hitting some magic number

What does it mean to be Financially Fit?

First let’s ask, ‘What does it mean to be physically fit?’ For some, being physically fit means having the strength and endurance necessary to win a marathon; for others, it is simply to finish. While some want to be able to compete at a professional level, most agree that being physically fit means having a level of fitness necessary to look good, enjoy a healthy life, and be able to participate comfortably in the activities they like.

There is no predefined point at which we suddenly become physically fit. Physical fitness is more about being on the right path and doing the right things from a diet and exercise perspective than reaching some magical point in time. However, having specific and attainable objectives that provide motivation for continual improvement is very important. Otherwise, we may struggle with direction and find it difficult to stay on the right path.

It's a State of Mind!

Financial fitness is also more about being on the right path than it is about reaching some magical number on a net-worth statement. Clearly, it is more a state of mind than a specific level of wealth. And like the concept of physical fitness, setting appropriate goals and objectives will provide motivation for continual improvement. Most people know if they need to become more financially fit. This knowledge generally stems from their daily interaction with issues surrounding money.

Measure Your Financial Fitness

Perhaps financial fitness can best be measured by how we feel as we interact with money on a daily basis. The following is a list of the many thoughts and feelings that you may experience as you progress towards a goal of becoming financially fit:

1. You have money set aside for the holidays before the shopping begins.
2. You are able to go to work every day knowing that if you lose your job or have a major illness, you have sufficient emergency funds set aside to carry you through.
3. Next year when school starts, you are able to purchase school clothes and supplies from money that is already set aside.
4. You never need to worry about checking the account balance at the bank before you pay a bill.
5. You are excited to get the next credit card statement, because you know that the balance is shrinking and if any purchases have been made, you already have the money set aside to pay for them in full.
6. Picking up the mail every day is not a drudgery, because you know that all of the bills coming in are just part of your spending plan and have been anticipated in advance.
7. You look forward to making decisions regarding the education of your children, because you are actively saving money for this purpose.
8. You spend time planning and anticipating retirement, because you are debt free and prudently investing money to fund the lifestyle you want to have.
9. Financial discussions with your partner are more focused on reviewing progress and planning for the future than on the last credit card statement, late bill, or emotional purchase.
10. The last thought on your mind as you drift off to sleep is about how much fun your upcoming vacation will be rather than a worrisome question of how you will be able to make ends meet.

There is a new tool that can help you better understand your financial fitness. This

Financial Fitness Quiz asks 25 simple multiple choice questions and tells you your financial fitness level. Take the Financial Fitness Quiz and find out how you score. You may want to take the quiz yourself and also have your spouse take the quiz separately. You can then compare answers to help you better understand how you each look at your finances (the quiz has a convenient print function at the end to allow you to save your results for later review).

Why Is It So Difficult?

Often this isn’t for lack of desire or even knowledge—many of us know the basic principles necessary to achieve financial fitness. However, in today’s world we have many convenient methods by which we can access and spend money. Most families have multiple checking accounts, overdraft protection, a home equity line, debit cards, credit cards, and store cards. The problem many of us face is that these convenient methods of spending ‘mask’ the root of our financial challenges—which are overspending and debt. People often spend as much as 10% more than they make every month… That adds up quickly! And most people aren’t even aware they’re doing it… until it’s too late.

Many of you may already be financially fit, and are already experiencing some of these feelings and thoughts mentioned above. However, for the majority of us, keeping our financial house in order is a daily struggle. We often spend a lot of time and energy worrying about paying bills, running out of money, increasing debt, or even maxing out our credit cards.

The First Step

If you want to become financially fit, the first thing you need to do is stop overspending. This sounds simple, but for most, it’s anything but. The fact is, if you don’t have a spending plan, you will continue to struggle with overspending and debt accumulation.

As soon as you stop living within your means, you begin to jeopardize your financial future and the achievement of the goals you have set. Consistently following the five steps outlined below will help you maintain and enhance your long-term financial fitness:

1. Complete a spending plan, and then review it and make appropriate adjustments each month. This should always be done with your partner. Make sure you continue to live within your means every month. At the end of each month, transfer the amount you have saved to additional savings, prudent investments, or increased debt reduction.
2. Set aside at least 5 percent of your net monthly income for savings. Consistently increase this amount as you eliminate debt and find other ways to save.
3. Define a net-worth statement, and then update it every 90 days. Review your progress and make appropriate adjustments to your long-term financial goals.
4. Define a debt-elimination plan, and then review your progress every 90 days and make sure you are on track with your debt-reduction objectives.
5. As you successfully eliminate debt, transfer the amount you were paying to satisfy debt into savings and sound investments. This added amount will assist you greatly in achieving your long-term financial objectives.

Being financially fit is not contingent on the amount of money you make or your net worth. You do not have to be rich to enjoy this level of financial peace and happiness. Recent studies have shown that happiness is more a function of principles you live by than the amount of money you make. The only question is, Will you take the steps necessary to change direction and start down the path to financial fitness?

You Choose Your Financial Fitness

The financial position you are in today will not be the financial position you are in tomorrow—it will be either better or worse. Change is inevitable. You cannot stop change from taking place; you can only determine the direction it will take. You know better than anyone else the rewards associated with the way you currently interact with money. Achieving long-term financial fitness takes courage, discipline, sacrifice, and consistent effort, but the rewards can be extraordinary. What direction will you choose?

Take the financial fitness quiz here.

Your Secret Weapon - A Budget

For many, the word 'budget' immediately sends shivers down the spine. Why in the world would anyone need or want to budget their money?

First off, budgeting your money does NOT mean you are poor, or are in need of financial assistance. You'd be surprised to know how many considered to be "middle class", regularly budget their money in order to make the most of what they have.

Secondly, designing and implementing a budget does NOT take a Harvard doctorate degree requiring hours upon hours of tedious work.

What is a budget?

Simply put, a budget helps you to track your income and keep your spending habits in check over a certain period of time, allowing you to reach specific goals.

Why Start A Budget

There are many reasons why a family may want to implement a budget. These "reasons" can be labeled BUDGET GOALS. The reason(s) you are budgeting your money.

It is imperative that you actually determine what your GOALS are before actually designing a budget plan.This is what you will be striving for.

Answer the question - 'Why do I want to start budgeting my money?' To save for a new house or car? Saving for your childrens' college education? What about an early retirement?

These are all very important goals that many of us will have to face at some point in our lives. And these are some of the goals that can be tackled through the implementation of a budget.

Summary - Set Your Goal(s)

Cash Flow Analysis

It is now time to determine the amount of "cash" that comes into your pocket every month, and the amount that leaves your pocket every month.

This is one of the most important steps in planning your budget, for it allows you to get a whole perspective of your current financial situation. At the same time, analyzing your "cash-flow" allows you to actually see where your incomes are coming from and how it is being spent.

Remember, this does not have to be done professionally nor does it need to be time consuming. In addition to that, try not to track every single penny that you spend. You'll drive yourself crazy. A budget should not frustrate you to death.

Start with your income(s). It's best to take it a month at a time so you get a clear, concise view of what you make on a monthly basis. Don't forget to include any benefit or interest payments you receive.

After you have an idea of the TOTAL amount you receive monthly, it's time to add up the expenses you pay every month. Generally, you can group most expenditures into two categories - fixed and variable.

Fixed bills - mortgage, car, insurance loans, etc...Variable bills - utilities, phone, car maintenance, entertainment, food, etc...

It is really important that you tally up EVERYTHING that is paid out monthly. That includes all taxes, social security, 401(k) (retirement funds), and any other deductions that you might have taken directly out of your paycheck.

It works best if you write down ALL the expenses/bills that you pay monthly.

If you are having difficulty remembering what is paid every month, take a look back through your financial records, checkbook or bank statements for more accurate numbers.

Remember, you do not want to spend hours and hours, sweating over this. Budgeting should not be like another 9-5 job. The quicker and easier this analysis process is, the more you will be willing to go through with it.

Summary - Write Down ALL Incomes and Expenditures

Review Your List

Now that you have your list of incomes and expenditures, it is time to review what you have written. Look and see what bills/expenses can possibly be lowered. Do you notice any excessive spending areas? Any bills you know for sure that can be lowered?

This is where you might have to make some sacrifices. Is your dream of a brand new BMW worth giving up your restaurant outings three times a week? These are the choices you are faced with when you must decide how you are going to reach your goal(s).

Start out small. There's no need to become a first-rate miser overnight. That's hard to do! Take things a step at a time. Implement one money saving strategy a week, or month. Remember though, you decide at how quickly you accomplish your goals.

Summary - Review And Decide Where To "Cut-Back"

Track You Spending

In the real world, you are faced with thousands of advertisements and gimmicks begging you to 'buy their product'.

Buy what you must, just keep in mind your budget.

In order for accurate records, track as much of your spending as possible. Simply save all the receipts you get from your purchases.This is important because you need to tally everything to see how much money you saved at the end of the month.

Summary - Keep Track Of The Money You Spend

Compare Results & Modify

Now it's time to find out if all your hard work has paid off. Were you able to lower some bills? Finding out how much you saved is the best part of budgeting. It's exciting! This is what makes the whole budgeting process worthwhile.

Stick with your budget! Modify your spending habits to try and lower bills bit, by bit. You'll soon forget about the whole budget idea, and just see it as a game, where you try and save as much money as possible month by month.

You can find 50+ money saving articles and 5 complete Ebooks to help lower your bills at:
http://www.SavingSecrets.com/access.html

Summary - Compare and Make Necessary Changes For Increased Results

Conclusion

The hardest part of the whole budget process is starting one. Once you set your mind to implement a budget, and take the time to formulate a written agenda, the rest falls into place.

Budgeting requires some small sacrifices. Changes in lifestyle. Changes in spending habits. Be creative and have fun saving money off your bills. You are doing this for YOU, to accomplish your GOALS, so stick with your budget plan and your will be rewarded!

Summary - Start YOUR Budget and Accomplish Your Goals!

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Budgeting Tips

Budgeting Tips

Creative Ways to Budget. How to get Started.

Tips:

• Don’t get discouraged! On average people overspend by 10%, don’t get discouraged that you do too. Stick with it and be committed to fixing it!
• Be consistent
• Get everyone involved. At the beginning you may even want to have a weekly family meeting where everyone who spends money is together, reviewing the spending plan. Its critical for you and your spouse to work together but, why not start educating the kids about spending management too?
• Learn to “Pay Cash”. Don’t rely on “credit”. If you don’t have the funds in your envelope, don’t make the purchase.
• Avoid Department Store or other merchant credit accounts. People tend to spend more with these cards and they often have higher interest rates.

Creative ways to Budget:

• Spending Management is a whole new way to look at the old concept of budgeting. A spending plan is proactive and puts you in control.
• Envelope Method of Budgeting
• Make it a game by seeing how much you can ‘sweep’ at the end of the month from your monthly discretionary envelopes into savings, debt reduction, or a new car fund/vacation fund.
• Mvelopes Personal- all online, with access from anywhere, at anytime.
• Use the Debt Roll-Down principle to quickly eliminate debt.

Ways to Start Budgeting:

• Make a commitment, and truly have the desire to change and succeed.
• Take stock of where you stand right now.
• Spend less than you make. Follow the success cycle (Plan, Track, Compare, Adjust) every month.

Budgeting eCourse - Day 5

Congratulations on completing Day 4! Welcome back! Only one day left, so let’s get started!

Today, in Day 5, we will cover a variety of things concerning debt – the reduction of debt and how to use the debt roll down principle. We will also review how to use credit cards effectively without increasing debt, as well as reading about some additional ways to save money.

The following checklist will assist you in keeping today’s tasks straight: Read Getting out of Debt by Steven B Smith

• Create a list of debt obligations
• Create a debt elimination plan using the debt roll-down principle
• Read Saving some extra money is easy!
• Read Save a little extra…

Getting out of Debt

By Steven B. Smith

Getting out of debt is one of the key elements to becoming financially fit. In a society driven by financial excess, reaching this goal is increasingly difficult but can be done with some determination and the right tools to help you get there.

According to a survey conducted by Impulse Research Corporation, 59% of Americans stated that they regularly maintain a household budget. This number is shocking considering the average household debt in America has grown to $18,700, with credit cards and auto loans combined. This ever-increasing debt load suggests that American families continue to spend more than they make. Obviously, many of the methods being used to manage household finances are not effective. Read the entire article …

Create a list of debt obligations

Before we can start to eliminate your debt, we need to first understand what your debt load is. Download the Debt Obligations Worksheet and let’s create a list of your debt obligations. We can use the example below to help us complete this task. If you used this worksheet in the ‘Define your Net-Worth’ exercise in day 2, simply use this section as a review to ensure that you have not left anything off.

In your list of debt obligations you will want to include the creditors name, the interest rate, the minimum amount due each month, and the balance on the account or loan. Make sure to include all debt accounts that you have – auto loans, mortgage, credit card balances, store accounts, personal loans, etc. Review your statements and monthly bills to ensure that you have included everything.

Once you have all the items listed, you will want to review your Monthly Spending Plan (that you created in Day 4) to ensure that you have included envelope spending accounts for each of these debts payments. If you missed any, take a minute or two now and revise your monthly spending plan.

The last thing we need to do before moving on to your debt elimination plan is to prioritize your debts in order of either lowest balance or highest interest rate. Often times the list turns out in a very similar order with either method. Number the items and have the paper handy during the next phase of today’s lesson.

Create a debt elimination plan using the debt roll-down principle

One of the most crippling effects on personal financial fitness is debt. Debt is every bit as damaging to your financial health as extra weight is to your physical health. Losing your debt load can be the most financially liberating thing you will ever do; while continuing to add to your debt, will likely be the most financially restricting thing that you can do. To successfully tackle personal debt, the first thing you must do is stop creating more. Simply put – if you continue to spend more than you make, you will never be debt free.

Let’s use the debt roll-down principle that was introduced in Steve Smith’s article, “Getting out of Debt” to create your plan. We will use this method to create a debt elimination plan designed to rapidly eliminate all of your debt.

Using an envelope system is the key ingredient to finding success with this approach. The debt roll-down principle works by maximizing the total monthly payment that you can make toward debt repayment. Each time you pay off a debt, you add the payment for that debt to the monthly payment for the next priority debt (from your list of debt obligations), which accelerates the rate at which that second debt is paid. When the second debt is paid, you add the payment you have been making on this debt to the monthly payment for the third priority debt. This process is continued until all of your debt has been eliminated. The key is to continue making the same aggregate debt payment each month, even after some debts have been eliminated. Following this debt elimination principle can often assist you in eliminating all of your debt, including your mortgage, in as few as seven to eight years. Read the entire article...

Saving some extra money is easy!

By Steven B. Smith, author of Money for Life, Budgeting Success and Financial Fitness in just 12 weeks ( www.moneyforlifebook.com)

The first step to finding a little extra savings each month is to find out exactly where your money is going. To do this:

1. Track your purchases and put together a spending plan.
2. Make sure your spending is less than or equal to your income.
3. If your spending is more, make adjustments to your spending plan by reviewing your spending categories.

Once you know where your money is going, it’s easy to find ways to make small adjustments that really add up. Read the entire article…

Save a little extra…
By Steven B. Smith, author of Money for Life – Budgeting Success and Financial Fitness in just 12 weeks (www.moneyforlifebook.com)

Saving additional money each month is really about discovering where you’re paying too much for goods and services. Once you know where your money is going, it’s easy to find ways to make small adjustments that really add up. Look first at reducing your spending in discretionary categories – such as eating out, lunch, entertainment, clothing, and personal items – can often be reduced. If you cut a little in each area, you likely won’t feel the pinch, but you can still make a difference in the big picture. Read the entire article…

Congratulations on completing the Financial Fitness University Spending Management Course, brought to you by Money for Life!

Budgeting eCourse - Day 4

Welcome back to Day 4 of the Money for Life Spending Management E-Course!

Congratulations on completing Day 3 – you are now more than half way through! In Day 4 we will create a balanced spending plan, review the success cycle and learn how to use the envelope budgeting method in today’s high-tech and often cashless world.

The following checklist will assist you in keeping today’s tasks straight:

• Learn the four steps of the Success Cycle
• Create a balanced Monthly Spending Plan
• Read Using the envelope budgeting method in today’s cashless society

Learn the Four Steps of the Success Cycle.

In order to make changes, you need to have a system that you can really use. The Success Cycle is a system that many businesses use – it is ideal for individuals as well. The Success Cycle will help you stick with your plan to spend less than you make. There are four basic steps to this system:

FIGURE Success Cycle

The Success Cycle seems relatively simple, but results can be extraordinary when these steps are followed consistently. All four of the steps must be followed for this system to be work effectively – the steps cannot be shortened or eliminated. In our society we often like a quick fix, however, we need to keep in mind that financial fitness and stability will come through the steady and persistent application of these proven principles.

Let’s review each of the four steps in detail to ensure that you understand them clearly.

Step 1: Create a plan

Just like you wouldn’t consider taking a trip without a plan and a road map, you don’t want to navigate your financial world without a plan. You created your Net-Worth Statement – the next step will be to determine what direction you want to take next. An important element of this will be how you plan to spend your money on a day-to-day basis so that you can get closer to your financial goals—that’s where creating your balanced spending plan comes in. We will do that a little later in today’s lesson.

Step 2: Track every transaction

Once your balanced monthly spending plan is completed, it will be critical that you track all of your transactions so that you can assess your progress. The only way to get complete value from tracking is to track every transaction – that includes expenses and deposits in all your budget categories, but also in all of your accounts. Tracking every transaction can seem overwhelming at first, but with the right tools, this can be very simple. There are many different tools you can use to do this effectively—You can use paper, an electronic spreadsheet, software, or an online application such as Mvelopes® Personal, or even a combination of all of these.

Step 3: Compare your actual performance with your plan

Unless you take the time to compare your plan with your actual results, having a written plan will do you very little good. This comparison step is a crucial one – it includes looking at both your income and your expenses. As you make this comparison, you will immediately understand how and where to make necessary adjustments. You should compare your results on at least a monthly basis.

Step 4: Make adjustments

Creating a perfect plan the first time around would be nearly impossible. Planning is a process that takes time, information and experience. As you plan, track and compare, you will gain the information and experience needed to adjust your spending plan accordingly.

You may want to increase spending in certain areas, and decrease the allocation for another. The plan should be tailored to your own personal needs, and that of your family, if applicable. That is the only way you will find success.

Create a Balanced Monthly Spending Plan

In Day 3 you created your list of spending accounts, or categories, for your spending plan. The next step we will want to take is to assign a spending amount to each of these categories.
Define the amount of monthly spending for each envelope spending account. Starting with the list of envelope spending accounts, determine the amount that you have previously spent in each category. To do this, it may help to look at past statements and/or receipts.

Sometimes it’s easier to determine the amount you spend annually. If that’s the case, simply divide the annual amount by 12 to determine the monthly amount. This is especially true for your periodic spending expenses. Calculate how much you will spend on vacation, car registration, annual insurance premiums, holiday gifts, etc. Divide those amounts by 12 to determine how much you need to set aside each month to cover these periodic expenses.

Using the Monthly Spending Plan Worksheet record your annual and monthly spending for each of your envelope spending accounts. You will likely need to make adjustments, so please be sure to use a pencil to record this information. Use the example below as a guide if needed.

When you have entered a monthly and annual spending amount for each spending category, calculate the totals for monthly required, monthly discretionary, periodic required, and periodic discretionary accounts. Next calculate the total annual spending and total monthly spending by adding up those sub-totals.

Don’t worry if at this point your spending appears to exceed your net income. On average people spend 10% more than they bring home, often without realizing it – just as the case may be with you. In the next step we will work to balance your spending plan so that this overspending does not continue to occur.

This spending plan is a working document. Once you start tracking your expenses from day-to-day, you will be able to review your spending plan and make adjustments as needed.
Balance your monthly spending planNow that you have calculated your total monthly spending, lets compare it against your total monthly net income so that we can determine if you are over or under spending. As I mentioned, people spend on average 10% more than they bring home, so don’t be surprised if you are amongst those that are doing just that.

A balanced monthly spending plan means your monthly spending requirements equal your total monthly net income. First thing, determine the amount, if any, that you have left after you have satisfied all of your monthly spending requirements. You would calculate this number by subtracting your total monthly spending (the amount you just calculated in the section above) from your total monthly net income (the amount you calculated in the lesson on Day 3). This is easy to do right on your Monthly Spending Plan Worksheet – simply record your monthly net income in the space provided and subtract the total monthly spending from your total monthly net income.

As stated before, don’t be shocked when you see this number for the first time. Most people in our society are over spending their income each month. If you are one of the fortunate few who are spending within your monthly net income, you have a few choices:

• Allocate the remaining balance to one of your envelope spending accounts, such as savings
• Increase the amount you are allocating for debt repayment or investments

It is important that you allocate all remaining income to an envelope spending account or accounts. Income that is not allocated may be spent in ways that are haphazard and unplanned. Or even in ways that are contrary to your financial goals.

For the rest of us, who are overspending, we need to find ways to reduce the amount of our monthly expenses, so that the total monthly spending is equal to our total monthly net income. The first envelope spending accounts that you will want to review for reductions are your discretionary accounts – both monthly and periodic. Review the list you have created and look for areas where you believe you can make reductions in your initial spending amounts. Keep track of the adjustments that you are making and subtract these adjustments from the total amount of overspending.

Remember, the goal is to live within your means. If you spend less than you make consistently, you will be able to build wealth, rather than debt.

If you really want to make a change in your financial life, you may need to make some sacrifices. No discretionary envelope spending account should be spared – cut expenses wherever possible to get your spending down below your income. If you are married, make these decisions with your partner – this will ensure greater success. When you are involved in the budgeting process together, you can count on successfully reaching your financial goals.

If you still need to make reductions after you have reviewed your discretionary accounts, it’s now time to look at your required expenses. Adjustments to these accounts are more difficult, as they usually require more significant changes. Carefully review each spending account to determine which can be adjusted. Sometimes you can negotiate reductions in your insurance expenses, reduce your cable or cell phone plan, or even refinance existing debt to facilitate a lower interest rate; therefore, reducing your monthly payment.

Once you have balanced your spending plan, you will likely feel a sense of relief, knowing that you can live within your means. If you can master the principle of spending less than you make, you will very soon start to see the positive results. As you continue to reduce your debt and increase savings, you will be able to reach a financial fitness level that few others enjoy.

Using the Envelope Budgeting Method in Today’s Cashless SocietyTraditionally the envelope budgeting method used cash and actual paper envelopes; however, in today’s high-tech and often cashless society, that would be a little unrealistic. Some expenses simply cannot be paid in cash and, therefore, we need to find ways to use these tried and true principles of envelope budgeting, in today’s world.

The major problem with many budgeting systems has been that they provide after-the-fact information, meaning you create a plan in advance and determine the amount you will spend in each spending category. At the end of the month, you then run a report, which tells you all the categories in which you have overspent. With this approach, the information is not real time—in other words, you did not have the information you needed at the time you were making a purchase decision. Systems like this do not tell you how much is left to spend. An envelope budgeting system provides this critical information. Read the entire article on Envelope Budgeting…

Congratulations on completing Day 4 – you are almost done! In Day 5 we will learn how to use credit cards effectively without increasing debt using an envelope system, we will create a debt elimination plan to rapidly decrease your debt load, and we will read some articles on how to save some extra money.

See you tomorrow!