Budget

No two individuals have the same financial woes. Not only do financial situations vary in income, debt, spending and saving habits, but they also vary in the perspectives of those individuals and how they rank their specific money problems. After researching a few polls on the most popular money problems, we’ve created a list of what financial issues most individuals worry about the most and what you can do about it.

I spend too much. Without a doubt, the most worrisome financial problem people dwell over is the act of spending too much money, but why? While credit cards play a big factor in their ease and accessibility of use, scientists have actually proven that spending money makes us happy. Surprise? Probably not. Much like chocolate cake or kissing a loved one, the idea of spending money can release a feel-good chemical in our brains called dopamine. Overspending can also stem from poor planning or lack of time. So, how do you stop spending? It’s not easy but doing things like changing your daily habits, only having one credit card and using more cash, unsubscribing from catalogs and finding other inexpensive ways to be happy will help you curb your spending problems.

I save too little. You’re not alone! According to the U.S. Department of Commerce, the average American household saves 0.4 percent of its disposable income, down from 2.4 percent in 1999. Some blame low interest rates; if you’re making very little in your savings account you have less incentive save. Others blame spending too much. It’s obvious – when you spend too much you can’t save what you should. One nice way to make yourself save is to detail out a clear goal. Additionally, you can set up automatic deductions from your paycheck, open a 401(k), and start an immediate savings account.

Gas prices are absurd. Energy prices, in general, are on the rise, but gas prices specifically are up one-third in the past year. And with our economy depending heavily on other world markets, it is clear that gas prices are not going to drop any time soon. There are several alternatives to driving, like taking metro transit, walking, biking and carpooling. But if you must drive, check out the cheapest gas prices online, remove heavy junk from your car, and be sure to check the oil, air filter and tire pressure on a regular basis. If you can, investing in energy efficient will save you money in the long run.

I’m not sure how much to save for retirement. The standard number for your retirement planning is 15% of your income each year. However, each person’s financial picture is different, and there are many variables that need to be factored in. You can either contact a retirement specialist, or check out the countless online calculators that will do the math for you. Some tips for retirement planning include 401(k)’s, IRA’s, pension plans, investments and annuities.

I need a budget. Are you constantly finding yourself out of cash? Is your monthly cash cycle consistently inconsistent? A budget is simply a plan on how to appropriately spend your money. In order for it to work, though, you must realistic and stick to your plan. Budgets are relatively easy to calculate. Simply sit down and create a map of your monthly spending and saving habits. Follow it accordingly and revisit it at the end of the month to determine what’s worked and what hasn’t. Another tip is to sign up for an online money-tracking program. You can even link your bank accounts and bills for deductions itemizations.

I need a financial plan. Wait, didn’t we just talk about budgets? A financial plan is much broader than a budget. It’s a track to help you achieve those big things in life, like a house, vacation home or your child’s education. It encompasses your savings, investments and even your insurance. Creating a financial plan is much more complex than creating a budget. Do some research and hire a financial planner. The peace of mind in knowing your financial future is secure and protected is worth the time and effort in hiring and educator to coach you through your big life decisions.

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No, budgets are not attractive, fun or exciting in any way shape or form. They are, however, the necessary evil that can assist in getting you and your family’s spending and saving habits back on track. It’s difficult to understand why more individuals don’t already adhere to a budget, what with the economic crisis and unemployment still looming above us. It would seem that the majority of individuals without a budget either don’t think they need one, are unaware of its benefits, or simply don’t like discussing or even thinking about their financial situation. The unfortunate part about that last point is the fact that implementing a personal or family budget can help dig those individuals out of the financial holes they’ve already put themselves in. And the best part? It’s ridiculously easy to do. From writing everything down on your own to downloading or purchasing budget software, technology has made it extremely simple to execute.

The first step in creating a budget (and all these tips go for individuals to families alike) is gathering every financial statement you can find. Examples include bank statements, credit card statements, investment accounts, utility bills, and income information. The idea is to gather any piece of information regarding an expense or income for you or your family in order to process the information into a monthly average. Record all your sources of income – any type of cash flow that’s coming to you needs to be recorded. Next, create a list of monthly expenses. Examples include the mortgage payment, car payments, auto insurance, groceries, utilities, entertainment, dry cleaning, auto insurance, retirement or college savings – essentially everything you spend money on (even that daily latte from Starbucks!).

After you’ve created your list of expenses, you’ll want to break it up into two different categories – fixed and variable. Fixed expenses are those that stay relatively the same each month and are essential parts of your way of living. Examples of fixed expenses include your mortgage or rent, car payments, cable and/or internet service, trash pickup, credit card payments and so on. For the most part, these expenses are essential yet not likely to change in the budget. Variable expenses are those that will change from month to month and include items such as groceries, gasoline, entertainment, eating out and gifts, for example. This category will be important when making adjustments.

The last steps include totaling both lists of expenses and income. This is where you’ll need to make adjustments and determine what types of changes you’ll want to make to your spending and saving. If your end result shows that your income outweighs your expenses, you can start prioritizing the excess to areas of your budget such as retirement savings or paying more on credit cards to eliminate that debt faster. If you are in a situation where expenses are higher than income you should look at your variable expenses to find areas to cut. Since these expenses are typically adjustable, it should be easy to shave a few dollars in a few areas to bring you closer to your income. Once you’ve made your adjustments and have a reasonable budget to stick to, make sure you review it regularly to determine whether you are staying on track and all your numbers are up-to-date.

In addition to the steps I’ve mapped out, I’ve also put together a list of snapshot tips to help you in your budget creation and execution:

Be honest!
Track your spending to make sure it stays within your guidelines.
Use software to save grief – personal finance programs have built-in budget-making tools that can create your budget for you.
Don’t drive yourself crazy, or stop buying groceries! Monitoring your spending can sometimes lead to overly-attentive detail – don’t go overboard.
Monitor your cash flow – it’s much more difficult to track where your cash is going, so keep those ATM receipts and watch your cash flow with more scrutiny.
Beware of expenses that may seem fixed – do you really need that $50 bottle of wine?
Aim to save at least 10% of your income for your future, such as investments and retirement planning.

Budgets aren’t easy to create, let alone stick to, but they are essential in getting a grip on your financial situation. Looking over this list of tips, I’m sure you’re thinking, “okay, easy enough.” But it’s not. It takes time, effort and active dedication to continually be aware of your saving and spending habits. The best part? You won’t regret it; it is guaranteed to pay off in the end. Think of your personal budget like your map and journey to financial peace of mind.