Simple: How to Budget and Fix Your Cashflow!

I'm on vacation. The following is a guest post courtesy of www.estrategiasfinancieras.com:

I believe that often people make budgeting out to be a bit more complicated than it really is, or creating a money tracking system a bit of a science. This couldn’t be further from the truth.

It’s Easy!

The Secrets to a Budget

Just remember this: Your income must be equal or greater than your expenses plus your debt.   I > E + D

This is the science: Always remember the total of everything you owe, so you can know the maximum amount you can spend on everything else.

In other words, if you earn $1000, your payments on debt and expenses totals $800, you only have to make sure you don’t spend more than $200 (I’d advice not wasting over $100 but that’s up to you), that’s it! You just have to know how to add and subtract, I know you know how to do at least those two.

How to Take Care of Your Money

1- Track your money.
2- Find the waste.
3- Stop the waste.
4- Redirect the waste.
5- Keep tracking.

• TRACK YOUR MONEY -- If you don’t know what you are doing wrong, you can’t know how to fix it. Unless you have in front of you ALL your money transactions so you can see what you spend and what you waste, you won’t know how to fix it. Unless you know where you’re wasting your Money you’ll never know where it’s disappearing to. Isn’t this one of the biggest problems when it comes to money management? Where did my money go? When you learn how to track your money, you’ll see how much you waste on little things (and sometimes not so little), that keep you from saving and reaching your financial goals.

• FIND THE WASTE -- Waste is what you spend on non-important stuff: McDonald’s, excessive movie rentals, eating out for lunch instead of bringing a sack-lunch, a coke here and a sprite there, etc.

• STOP THE WASTE -- This is quite simple, once you find what you are wasting so much on, stop doing it. This is the money you’re losing that you could be using towards your savings or pay down debts. Yes, the waste is what makes saving impossible.

• REDIRECT THE WASTE -- I am not saying throw your life away into a saving bliss, that’s not it at all. There’s nothing I am more against that becoming a tightwad and have a boring life trying to save every penny possible. What I am saying is that instead of frittering all your money away, you use redirect that money in better and more useful ways, maybe like this: Part of it goes into savings, part of it towards your debt or a small investment fund, part of it goes into having fun or give yourself an allowance that you can use towards having fun but once you’re out of that money you cannot go back for more, the point is not to have fun, just to control how much you pay for it.

• KEEP TRACKING -- Develop the habit of tracking your money daily. Every good successful business does it, in bad times, but also in good times and with great discipline. Unless you keep tracking your money, you will lose good habits, and a lot quicker than you think, then before you know it you’ll be back in the same financial trouble.

Comments

[DebtBeater]

This is so in line with what I've been doing the last two weeks that it's almost the perfect recap of my plan so far. I'd say the steps are right on the money up through the redirect the waste step. (Which is where I'm currently at right now...aggressively finding places to redistribute my income and posessions to reduce the debt.) It just so happens that I have a very recent article posted describing some advantages of making our first budget that we realized when following these steps.

[RV]

Greetings-

Great article, easy to read and understand. Recently have I begun my journey of budgeting. This is my second month. So, I am tweaking it as I move forward.

I use Google Docs. I keep the receipts and input them.

Cheers
RV

[KK]

This is a great post. I mean I read about budget this and budget that all the time and like to tell other people how to budget their money, but having so much difficulties on my own.
Just last week. I totally up all of my transactions from my debit card and it totaled $2.49. This is where it went: 3 orders to amazon, wholefoods (aka whole check), Kids footlocker, Barnes and noble, $33 from mailing back things that I brought on line and no longer wanted...the list goes on.
The thing is I know better than this...

[Minimum Wage]

I earn minimum wage and I'm paying $300/mo in debt service. I don't think there is any "fix" for my budget.

[rwh]

We practice "reverse budgeting". We save automatically into several different accounts: emergency, college for kids, retirement, prepay for the next car etc.

What's left is what we live on. I've heard others describe it as "paying yourself first". Works for us and is quite simple. Although obviously you have to have a certain level of income.

[Minimum Wage]

So you agree it wouldn't work on minimum wage?

[EF]

Minimum Wage,
It's true, it's hard to make a budget work when there isn't enough money to make a budget with. Again the formula is I >_ E+D (Your income must be equal or greater than your expenses plus your debts). If you are not able to do this, then I agree, budgeting doesn't work, as a matter of fact the formula would read I < E+D = +D (If your income is lesser than your expenses plus your debts it equals to more debt).

As far as a "fix", the only fix for this problem is adding income. There are a lot of great posts all over this site where you can find ideas on how to supplement your income, browse through, good luck. I wish you the best.

[Minimum Wage]

I've decided to start a blog and I even know what I want to blog about and what I want to call it. I'd like my own domain name; i.e. I want to be like FMF, not like blogspot. But the setup seems intimidating. Where would I find good software that lets me do things like index on keywords? (I've observed that good blogging software allows that, while crummy software does not.) How complicated is the setup to do it right? It's easy to do ablog but I want to do a good blog.