Last week we looked at Taking a Financial Snapshot, which is a great way to assess your overall financial health. By tracking and listing your expenses, you were able to get a good idea of what your spending is in different categories, such as groceries, gasoline and gifts. But how does knowing this information allow you to reign in your spending, pay off debt, and get you to start saving at a higher level?
That is where budgeting comes in. Most people think of the Financial Snapshot as a “Budget.” Many even wince when they hear the term, as it reminds them of financial failures and rigid rules. I don’t see it that way. While the word “budget” is used as a noun, I prefer to use it as a verb, as in “to plan an allotment of (funds, time, etc.)” according to my Webster’s Universal College Dictionary.
Is this just a question of semantics? I don’t think so. To me, it is empowering to think of “budget” as an action word, rather than something that just describes my financial situation.
It has taken me months of careful tracking to get an accurate financial snapshot, since we have had so many life changes this past year. My husband’s new venture as a contractor provides very unpredictable income, our move from an apartment to an older home has changed all of our housing and utility costs, insurance has changed dramatically, and we have different vehicles than a year ago.
This is the first month that I feel I can say, with some degree of reliability, what our spending will average in each category. How can I use that knowledge? My overall goals are to pay off the debt we accrued in purchasing and renovating our home, rebuild our Emergency Fund, and start saving for further needed renovation to the home. Looking at our average income per month, and our total fixed and flexible expenses, I can see that we need to reduce our expenses in order to achieve those goals. I can even come up with a figure of how much I want to reduce expenses in a month to work towards that goal.
Then, when I drill down to a particular category — say, groceries — I can determine that I need to reduce it by X dollars as part of this plan. This objective becomes a challenge to me. I brainstorm ways to reduce grocery costs, such as a monthly meal plan, making a price book for my local stores, and stockpiling groceries when they are at their lowest costs.
Here’s an example: My husband spends money on getting drinks and snacks at convenience stores, so I am trying to replace that expense by keeping a stock of beverages and snack foods for him to take with him each day. When I get these items in a larger quantity, and at their lowest price points, it offers a tremendous saving potential. Just this week, I was able to purchase packs of 6 bottles of soda he likes at less than the convenience store price of 2 bottles. Throughout the month, this savings really adds up.
Over the course of this series, I will discuss how you can save more on groceries, and ideas to save on other common spending categories, such as gifts, gas and electric. I hope this helps you to think of a budget as a tool for achieving your goals.