Posts Tagged ‘saving money on everyday expenses’

The Humble Envelope – Your Ideal Budget Buddy

When it comes to budgeting, a lot of people tend to either freeze at the idea, or turn and run like hell, because it seems like an overwhelming task.

Relax, it actually isn’t. In fact, compiling a budget is actually a lot easier than you realise, and will make your life a lot easier and a lot less stressful as well.

It will be far easier to see where you may be going wrong once you have everything down on paper and staring right back up at you. You will go from a case of, “It can’t be that much that I spend on take aways” to, “We spent HOW much on take aways??????” Once everything is down on paper, it’s far more difficult to ignore the financial freefalls that have been draining your cash faster than you can zip your wallet closed.

You may be wondering by now, where the envelopes come into the whole budgeting process. Everything will be explained as we go along. Promise.

First things first though. When you take that important step to compile a budget, you will need to know exactly what your income is for the month (or week, depending on how you are paid, of course). This may include a spouses income, as well as rental income from an additional property etc.

Start by taking a sheet of paper (or 2, depending on how large your budget is going to need to be). At the top of the first sheet, list all of your incoming finances.

Once that is done, you will need to then start listing every single expense that you have for the month/week. A typical budget would generally include things like rent (or mortgage payment), gas/fuel, phone bill, medical plan, school fees, groceries, utilities, internet fees, magazine subscriptions, an entertainment allowance, as well as any other expenses that recur each month.

Starting with your income amount on top, list each expense below this, and subtract each amount from your income amount, until you have listed all of your expenses. If you are still in the green after this exercise, well done! Most people end up going into the red before they are finished.

This is where your envelopes will start to play their part. They are normally used for the ongoing expenses that need to be met during the month, such as gas and groceries.

Sure, you budget an amount each month for these two important items, but many times, after the first two-week, you may find that your budget for those areas has run dry. This will be where your envelopes come into play.

Set aside an envelope for each week of the month. Take the money that you have set aside in your budget for groceries, and divide it up evenly as per the amount of weeks in the month. You can also do the same for gas, or any other expenses that recur on a weekly basis.

A fair bit of self-discipline will be needed here though, to prevent yourself from simply ‘borrowing’ from the following week’s budget., as this will defeat the purpose of this exercise.

Once the money in each  envelope is finished, then you have nothing left for the rest of the week, until the following week rolls around. It does take some getting used to at first, and you may find that you run out of cash. But I can promise you, that in most cases, there are truly very few items that you will die without having until the following week (emergency medication and things like baby food are obvious exceptions).

After a few weeks have gone by, you will get used to the system, and you may even find yourself with a few pennies or even a dollar or two left over from the budget. Congratulate yourself.

The fun doesn’t necessarily have to stop here though. Bring another envelope into the game, and label it ‘extras’ or ‘overs.’ Should there be anything left from the previous week, put it into this one. You will be surprised at how fast it adds up. These ‘overs’ or ‘extras’ can then be put into a savings account once a month, or they can even simply be set aside to do something fun with. There is no end to the possibilities which this can be used for. Should you wish, you could also use is as an additional debt repayment, or even add it to your initial mortgage repayment.

I am making use of this system ,and it is working very well for me, so I am sure that it will also work very well for many of you out there who need a little help along the way with learning how to budget, and how to spend wisely during the month on essential items.

Comments, ideas or suggestions? Feel free to post them below.

Want it now? Be prepared to pay twice

“Special Offer!! Prices never to be repeated!!” “Buy now, and pay over 36 months.”

One of the oldest marketing ploys in the book, yet so many people still seem to fall for it hook, line and sinker.  It’s amazing how signage like that in a store window can cause people to behave like frenzied squirrels on an acid trip.

Often, people will tell themselves, “I will only buy what is on special,” but we all know that we will end up leaving the store with so many other extra items, simply because they were advertised as being “on special” – nevermind whether they were needed or not. The marketing monster manages to dig its claws into almost every single one of us. Because, at the end of the day, many of the so-called “items on special” actually really aren’t that cheap anyway.

 The flip side of the situation is that a lot most of the items advertised as being “on special” are actually absolutely non-essential luxury items. I mean, think back. When last were basic foodstuffs advertised “on special”? Or gas for that matter? Nooooo….99.99% of the time, it will be frivolous luxury items that will supposedly be “marked down” in order to sell them.

Hire purchase makes things so easy these days. But, at the end of the day, you could will end up paying double, or even more than double, for the item that you have purchased. One example I saw in a local store catalogue this morning was a classic example of this.

According to the New Credit Act in South Africa, it is mandatory to list the payment terms, amount per month which will be repaid, and the total amount that you will end up paying for the item at the end of the payment term. Almost every single item listed, would require you to repay double the purchase price for the item. Definitely not a wise way to purchase anything!

It’s pretty much like a 2 for 1 offer that you often see, but the only difference here is that you are paying for 2 items, but only receiving 1. If that had to happen at the checkout, I’m sure you would kick up a fuss. So why should it be acceptable to do that at any other time? I for one, do not see the logic in paying for 2 items and only receiving one. Sounds like daylight robbery to me.

Next time you see a “Never to be repeated” offer screaming at you from a store window, do yourself (as well as your budget and bank balance) a favour, and walk away. Do not give in to the voices in your head telling you that you “need” the item that is on special. Back away slowly, or better still, take off at a sprint.

It IS possible to spend less than you do now

As a result of the recession, many folk are looking for ways to either save money, or make a little extra money, simply to meet their day-to-day expenses.

Often these expenses are astronomical, due to the fact that people see things as necessities today, that were considered luxuries a few years ago. By drawing up a concise budget, there will be a 99.99% chance that you will find a few ways to spend a little less each month.

Speaking from personal experience, I fell into the “I simply cannot spend less than I do now” category. I had fixed expenses, and I honestly thought that I was already spending as little as possible.

A job change, however, forced me to review my spending habits, and rework my budget extensively. Since the job change, I no longer pay for a gym contract that was hardly used, I pay less for prescription medication, as a result of shopping around for the best price, and not just paying the higher price for convenience sake. I now live close enough to the office to cycle to work at least twice a week, saving substantially on fuel, and running costs of my vehicle.

I do laundry more efficiently now, instead of more often, which saves water as well as electricity. I have chosen to only shop for items that are necessary, and not shopping for whatever caught my fancy at the time, simply because I had the cash in hand to pay for it. Despite having a substantially larger pay cheque back then, I still managed to spend a lot more than I earned, which I am still repaying at an interest rate of 19.5% .

It became a vicious circle. If I saw something I wanted, I simply whipped out the gold credit card and used it. These days, if I see something I want, I add it to a list that I have started. After a while, I go through the list, and if the item no longer appeals to me that much, I remove it from the list. For the items that survive the chop, and are still on the list, I save to buy them, even if it takes a month or two.

Despite my drastically reduced income, I find that, with careful planning, I am still able to afford the occasional treat. The best part now though, is knowing that each item I buy now, is not purchased on credit.

Spending less than you do, merely involves a little planning and effort. As mentioned in the above examples, there are almost always cheaper alternatives to what you are already using. While paying debt, I have channeled these small savings into my debt repayment plan, and am still successfully on track to have it all paid up by the end of May 2010.

Below are just a few of the items that I have saved a few dollars on over the past few months:

Prescription medication: $5.40/month by purchasing from a cheaper source.

Gym contract: $27/month by eliminating, and cycling instead.

Medical plan: $8.94/month by changing to a cheaper monthly plan.

Purchasing one lottery ticket a week instead of two: $2 a month saving.

Cycling to the office two days or more a week: $10.70 amonth gas saving (almost half my gas budget per month)!

Dropping to a lower text messaging package: $2 a month saving.

Just those small savings add up to $56.04 a month! Right now, that is covering the interest fees on my outstanding credit card. Not too shabby if I may say so myself! Once the debt is paid up, that will then be transferred into a savings account, which will amount to a tidy sum of $672.48 a year. Pretty good exchange for an hour or two’s worth of effort to shop around.

The most important thing to remember here, is that you cannot begin to save in any area of your life, if you do not know how much you are currently spending. So a budget is an extremely important financial tool in this regard.

Stop. Think. Before you shop. Before you create debt. before you complain about how much everything is costing. Learn to budget. Now.

Feel free to post comments.

The dreaded “B” word

I trust that many of us had a wonderful few days spent with family and loved ones during the festive season. Now, many of us are feeling that somewhat let down, or empty feeling now that the celebrations are pretty much over until next year again.

Sadly though, many of us would have spent far too much over this time, be it cash, or on credit(horror of horrors), on gifts and celebrating in general, and are now feeling the pinch financially, because January tends to be a very long month because of the apparent lack of funds until our next paycheque arrives.

Now is the time that many folk regret spending more than they have (or rather, had), because, now is when they realise just how much has been spent, and how long it will take for them to pay back what they have borrowed, in order to finance the festive season. Now, all of a sudden, those fancy gifts don’t seem all that appealing or desirable anymore, do they?

Folks, this is where I bring the dreaded “B” word into action – BUDGET!!

Seriously folks, if this word had been a part of your vocabulary, and everyday life before you had embarked on your festive season frivolities, you would more than likely not be feeling so under the weather now regarding your finances. But fear not, this is where I come in, to help you along with a few budgeting tips and ideas, to hopefully help you to avoid falling into the same trap when the next reason for celebration rolls around.

Yes, I’m sure we have all made the same mistake of spending far more than we actually have in our possession to spend (I have been there myself, but have learned from my mistakes, as well as the mistakes of others along the way). So often, I have been in the shops, and heard the words while standing in the checkout line, “I honestly don’t know how we are going to pay for all of this.” Good grief! If you don’t know how you are going to pay for it, for goodness sake, don’t buy it! Save yourself a lot of stress and financial worry by buying only what you can truly afford. If you feel that friends or family members will look down on you for buying smaller or more affordable gifts, then they obviously don’t really appreciate what they receive in any case. To them, it’s simply a case of seeing how much stuff they can get, regardless of the fact that the giver of the gift will probably be indebted until 2099 to pay for it.

Statistics show that the hype of receiving the gift, and the actual enjoyment derived from the gift itself, seldom lasts beyond a day or two after receiving it anyway. So why spend a fortune on a gift, or gifts, when it will stand a 99.9% chance of landing up in the back of somebody’s closet the minute you reverse out of the driveway? Rather senseless, wouldn’t you say?

Through my own experiences, I have learned that true friends respect you whether they receive soap on a rope, socks,  or an mp3 player. True friends don’t measure the worth of a friendship by the size or value of a gift that they receive from you. Family members worth their salt will understand if told that finances do not stretch to purchase gifts for every single person on the 376 branch family tree.

Below, I will add a few hints and tips on how you can better prepare for the next round of gift buying and celebrations long before they even start. Yes, it is a lot easier and a lot less time consuming and complicated than you think! Yes, I also hear those comments lurking in the background that are along the lines of “I don’t have the time to budget, or to try to find ways to save a few pennies here and there,” or “What’s a few pennies going to help anyway?”

A wise person once said, “Take care of the pennies, and the dollars will look after themselves.” This is so true. So often, we don’t stop to think about how the humble penny is born, and how it has the potential to grow into one, or even many dollars along the way, if treated right.

Start by compiling a budget. Yes, the dreaded “B” word. If you have never done this before, I will include a few pointers and tips to help you make the most of your incoming funds:

Start off with a statement from your day to day checking/banking account:

I find it far easier to work with a printed statement for the purpose of compiling a budget, so that the figures are physically staring right back up at you as you work.

At the top of the page, list how much is in your account before the usual monthly bills are deducted:

For example, if you and your S.O both receive a paycheque (or even if only one of you does), this will be the amount reflected on the pay advice after the taxman, 401(k) or other similar retirement funds in other countries, and medical munchkins have taken their share. What is left, is pretty much what you have to use to cover all outgoing expenses as mentioned in the step below.

Using the statement, list all charges that are regular deductions:

These may be utility bills, school fees, medical expenses, cable television, internet connection costs, gym memberships, other club memberships, phone bills, credit or store card repayments, groceries (if you aren’t too sure how much you spend on groceries, I will assist with a few pointers in this regard as well in this article), car payments etc.

Once this is done, the amount left at the bottom, is what you have left for extras or any unexpected expenses that may crop up during the month:

If you find your budget going into the red before you have finished listing your expenses, you could be in serious trouble, because that means that one, or several bills could end up going unpaid, resulting in your credit rating taking a sharp knock, as well as late fees on unpaid bills.

Take a look at expenses, and if need be, trim back or eliminate any that are not true necessities:

When last did you actually set foot in the gym? How many of those 487 satellite or cable channels do you actually have the time to sit and watch, or enjoy watching? Chances are that you watch less than 10% of what you are paying for. There are many other ways of getting cheap (and often almost free) forms of exercise and entertainment, rather than vegetating in front of a television and lamenting over the non-existent lives of soapie stars.

You may need to consider trying to find a second form of income to service debt repayment:

If as earlier mentioned, you find that there is more debt than money, you may need to seriously consider taking on a second job, or even perhaps discussing the option of asking your current employer for additional responsibilities in exchange for addtional income. If you are truly wanting to see light at the end of the debt tunnel, no job or post will be too menial or ‘below’ you to take on.

Divide what is left in your day to day or checking account, into 4/5 – for the remaining weeks of the month until the next payday rolls around:

I have found that this is by far the easiest way to keep track of how much is spent on groceries/foodstuffs/cleaning supplies and other expenses that crop up from day to day during the month. By doing this, you know exactly how much you have left to see you through the week.

This is where the fun part comes in:

Whenever you need to make a trip to the grocery store or supermarket, always be sure to check prices before loading the basket or trolley. Also shop with a list, so that you are better able to keep track of expenses. If need be, carry a calculator with you while trawling the aisles, so that you can ensure that you don’t go over budget.

You will most likely have a few pennies or even a lonely dollar or two that has not been sucked into the supermarket cash register once your shopping has been done. Take these homeless pennies and dollars (if any), and keep a jar or two around the house (I find the kitchen, living room, and laundry room are idea places to house these). Place all of the pennies and any other loose change you may have, into these jars. You will be surprised to see how fast it adds up. Even if you only manage to save a mere $10 to $15 a week on all your expenses, this will soon add up to a rather hefty sum of between $520 and $780 a year! Certainly not an amount to scoff at!

Once you start seeing just how these small amounts add up, you will soon be roping the entire family in to see where pennies can be saved on everyday expenses. You could even have a contest to see who has the most creative ideas to save money, or who is able to save the most money throughout the year. The possibilities are endless.

One of the best ways to watch these savings grow, is to open a seperate savings account to deposit these amounts into, perhaps on a monthly, or even every 3 months or so, so that it can gain a little extra interest by the time the next festive season rolls around!

Do you perhaps have any additional budgeting tips that I haven’t covered? Feel free to post below.