Budget Basics To Live By

paper game with budget termsChris Peach of Phoenix, Ariz., never gave much thought to money—until he realized he was flat broke.

Despite having a good job, a nice house and a luxury car in the driveway, he and his wife, Andrea, also had zero savings, maxed-out credit cards and a negative balance in their checking account. “We had been overspending and saying yes to everything,” he recalls. “We never asked how much things cost—we only cared about how much we had to put down and pay each month.” When Andrea called one day crying because she couldn’t afford to buy groceries, Peach knew things had to change. “It was shameful and embarrassing and a real wake-up call,” he says. Peach and his wife decided to go on an extreme spending diet and cut every expense they could.

Their goal: to pay off their debt and stop living paycheck to paycheck. “We sold our car, which was costing us $550 in monthly payments, cut off cable and postponed vacation plans,” he says. To boost their income, Peach worked overtime and picked up a side job cleaning pools, while his wife began selling her designer clothes on eBay. “We completely changed our habits, and over the course of seven months we paid off $52,000 in debt!” he says. Today, the couple still follow a strict budget, but their goals have broadened to include saving for retirement, holiday gifts and bimonthly date nights. Peach even works as a financial coach and shares his budgeting advice on his popular blog, MoneyPeach.com.

Setting goals, like the Peaches did, is the first step toward creating any kind of financial plan, says Winnie Sun, managing director at Sun Group Wealth Partners in Irvine, Calif. Sun also believes that creating a budget to achieve your goals doesn’t have to be painful. “You just have to get in the right mindset,” Sun says. “You’re not giving up something—you’re gaining something by choosing yourself first, not just for today, but for the future. You deserve better than to work hard and have nothing to show for it,” she adds.

Consider trying the following steps to sharpen your focus, scale back spending and achieve your dreams.

Write Down Your Goals

“If you don’t put your goals on paper, it’s not going to happen,” says Peach. “The more laser-focused you are, the better.” Want to own a home by the time you’re 30?  Pay off your student loans in 10 years? Write it down with a time frame, put it where you can see it every day, and monitor your progress.

Figure Out Your Priorities

Food, housing, insurance and health care are must-haves. But non-essentials like dining out, shopping, movie-going, vacationing and other extras are ripe for cutting. You’ll need to figure out which ones are important to you and prioritize them. “You can want it all, but you can’t have it all,” says Sun. “You have to choose.” Be careful not to become too austere. Leaving no room for leisure can make cutting back a big downer rather than something uplifting.

Assess Your Current Spending Habits

Review your statements from the last few months to see where your money’s been going and what might be dragging you down. Splurges like taxis and lattes, happy hours and lunches out may seem small at the time, but they add up.  “Look for patterns and see where you can cut back,” suggests Sun.

Keep It Simple

A budget can be overwhelming if it’s too detailed or idealistic. Be realistic about your lifestyle and habits, and only get as detailed as you want. If tracking your daily expenses is too burdensome, track them weekly or monthly instead. “People make it more complicated than it needs to be,” says Sun. “You don’t need spreadsheets or special technology. You can simply put money in your bank account and have a portion automatically transferred into savings. Whatever is left over is what you can spend.”

Plan For The Unexpected

Budgeting for emergencies like hospital visits and car repairs will provide a buffer without blowing your budget. It’s smart to plan ahead for predictable annual expenses, like taxes. Peach sets aside money each month for new tires for his car, which he knows he’ll need at some point. “That way, we don’t have to borrow money to pay for them,” he says.

Avoid Temptation

Just like dieting, budgeting requires willpower and the ability to abstain. To stay on track, throw out glossy catalogues, unsubscribe to emails that promote upcoming sales and take a different route to work—especially if walking or driving by your favorite stores each day is too tempting.

Increase Your Income

In addition to cutting expenses, consider increasing your income too, by taking on a part-time job or selling possessions that are taking up space. Odd jobs like dog walking, babysitting, driving people to the airport, running errands or renting out a spare bedroom are great ways to earn extra cash. Companies like Uber, Etsy and eBay help you monetize your assets and talents.

Find Creative Ways To Save

There are many ways to cut back: Eat more meals at home and pack lunches for work; check out books and DVDs from the library instead of going to the multiplex; choose less expensive alternatives to top-shelf electronics and makeup; and opt to purge, not splurge, when it comes to clothes. In addition to cutting variable expenses like these, try these strategies for cutting fixed expenses:

Credit Cards

If you have credit card debt, call your card issuer and ask for a reduced interest rate, or transfer your balance if it means long-term savings (but beware of interest rate hikes when the initial rate expires). Consider canceling annual fee credit cards. Leave your cards at home and use cash.

Memberships

Look at the subscriptions or memberships you have that renew on a monthly or  annual basis, and only keep the ones you can’t live without. Exercise outdoors instead of at the gym and read online articles from your favorite print publications. Cancel apps with recurring fees.

Insurance

To reduce monthly payments, inquire about bundling. You could qualify for a multi-policy discount if you purchase all your insurance (car, home, boat, etc.) through GEICO. You can also see if you qualify for discounts. Students with good academic records and people serving in the Military may qualify for discounts on auto insurance. Call 1-800-841-0728 to review your policy with a licensed agent to make sure you’re getting all of the discounts you qualify for or visit geico.com.

Share Your Goals

Get buy-in on your budget from your spouse, partner or roommate, and be open with family and friends about your goals. “The more transparent and comfortable you are when talking to others about your budget, the more successful you’ll be,” says Sun. “You’ll find that as you share how careful you are about spending, you’ll attract supportive friends who are also in the same boat. You may even start saving together.”

Want more support? Money management websites like Mint.com and Buxfer.com offer a number of features and tools to help keep you accountable.

Find out all the different ways you could save on your insurance by visiting GEICO’s discounts page.

By Sarah Hutter

Next article: 6 Mobile Apps To Help You Budget Smarter

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