Budgets

How to Build One and How to Stick to One

As discussed in my Cash Flow Blog Post, you could use Mint.com to set up your budget as it automatically tracks the amounts you spend in each category for you. However, another important part of building a budget is seeing if you are spending too much in one category or another.

Gail Vaz-Oxlade's Budget Worksheet will help you see if you are overspending in one area or another. Go to the site and at the bottom of the page, there is an option to download it as Excel as well. She says that housing should be 35%, which I believe is a little high. I think around 30% is more reasonable. Also, there is only room for 10% savings and I think that 15% is better. She is Canadian and they have a better retirement plan, therefore, their savings do not have to be as high. I think if you cut back 5% from the housing and add it to the savings, you'll be doing great if  you are able to spend within that budget. Transfer whatever numbers you come up with to the Mint.com budget, which will help you stick to it, and you'll be set!

Always remember that the more you can save the better. If you are earning $30K after taxes, for example, you are only saving $4.5K if you are saving 15%. This means that you are not even maxing out your Roth IRA, which you should. This also does not allow any room for saving for emergencies, a down-payment, grad school, or a vacation. Therefore, always remember that the more you can save, the better you will be off in the future.