So... I'm obsessed with excel and budgets. I'm an accountant, I mainly focus on taxes but I have certainly helped businesses create budgets and there are things that people NEVER consider.
1) ALWAYS make sure to cover the necessities. Rent, water, trash, energy, phone (yes, this day and age, that's a necessity), internet (if you're a student or job hunting, I would consider this a necessity), insurance. and then any bills you are obligated to pay (owe on credit card, student loans, etc).
2) Write all of those down. Add them up, energy can vary so I often take a look at my historical bills and either average on the high end for the months, or, to be very conservative, I take the highest bill and that's my budget. Once you write these down, see about if there is a way to DROP any of these expenses.
Dropping Rent: You may or may not be in a situation where you can get a room mate. If you have a spare room and don't mind renting it out, you could get a room mate to contribute an amount to living costs. My friend owns his own house and discovered he was lonely in a 3 bedroom house so he rented out one of the rooms for $650 a month. $650 a month suddenly available, is a pretty big deal.
Dropping Energy: I have no idea what your situation is, but I do know that for some low income families they can qualify for assistance in paying energy bills. Some states will help pay for energy with "credits" for low income, some companies (like excell) will help cover your bill if you're low income. Also, a room mate, if you go that route, can pay half of your bill.
Dropping Water: Personally, my water bill for my Fiance and I in his house with me taking 1-2 hour long showers (I love showers) is maybe $20. I have no idea if that's different in different areas. There also may be ways to get cheap or free water. (See Energy).
Dropping the phone bill: There are SOOO many options out there for phones! I noticed a lot of the contract phones are far more expensive for the bill, but cheap for the device, and the non-contract phone carriers are more expensive for the phone but cheap for the service. A great way to deal with this, is move to the cheap service. Cricket, Virgin Mobile, etc. You can find a decent deal for $30 a month. My Fiance uses Virgin and he pays $30 a month. I have Sprint and I pay $90 a month. My contract ends in August and you can bet I'll move to Virgin. I currently have unlimited everything, and my Fiance has unlimited data and text, but limited minutes. He doesn't talk on the phone much, so it's rare he has to up his limits (I think the only time he added more to a month was when he was in recovery from the ICU and everyone wanted to talk to him). Also, the more expensive smart phones (Iphone, samsung) come with more expensive data plans. Often adding $20 to a bill. I have an iPhone, so that adds, my Fiance got a Samsung from me for Christmas and that did up his data bill by $5 ish. So, a cheaper phone won't only be cheaper to get, but it can save you on the bill. Also, don't buy the phones from the stores. Ebay is your new friend. I purchased My Fiance's phone on Cyber Monday, getting is for 50% off, but I got my phone on Ebay, at the time it was new and shiney iphone 4S and I got it for $200 cheaper on Ebay than getting it in the store. I was also able to sell my palm pixi online and make some money. So buy your phone from online to save even more.
Lowering the internet bill: My Fiance and I called our internet service provider about 3 months ago because I decided that $75 seemed ridiculous compared to what everyone else was paying. After about 2 hours on the phone I got my bill to go from $75 to $50 and added HBO for free. Currently it was just internet we were getting. Now I can watch Game of Thrones and John Oliver and I SAVED money. You'd be surprised how much money you can save by just calling some of your service providers and standing firm for a good price. I've heard of other people lowering cable bills, phone bills, and others just by calling and bargaining. This takes a firm hand, kind words (Firm and kind can go together), and an understanding of the competitors prices.
Lowering Insurance: So, this is a big deal this day and age. I'm keeping politics out of it (I don't care if you agree or disagree) it's currently the "law of the American Land" so to speak. So, you have options here. The first thing I would reccomend is checking your state, or the government website to see if you qualify for assistance (I would hope you all ready checked as the window of opportunity was a while ago). If you qualify for medicaid, BOOM, done. IF not, see about credits and if those can go towards a plan you can pick out. Don't qualify at all? That's ok, take the time to shop around, find a plan that works with your budget, covers your needs, and is in line with changes that will take effect. Also, see if your employer has a medical plan. These are generally FAR cheaper than getting one on your own. If you have a lot of medical expenses I would consider a few options to help with burdens as well. HSA (health savings accounts) are a good option in some instances and some employers match your contributions. This will save you on taxes later. You have a max you can put into these, so make sure you look into them first. If you dont' qualify, try a Flexible Spending account. My Fiance set this up for his many expenses so far. His employer also adds some as well. Carefull with these ones as these are "use it or lose it" type accounts. But a lot of expenses, these can really help the tax burden. You can talk to your HR rep about all the benefits and expenses offered at your company, and if you're still unsure, there are many banks and financial institutions that will explain and help out with these. Lastly, and hopefully not the case. If you don't qualify for credits at all and your company doesn't have a plan, or plan is not reasonable, then you can see the expense benefit of NOT having insurance vs paying the tax. Note, that this does cause a good risk if you ever, hopefully not, need to go to the doctors and it makes it a lot harder to work on preventative care. But, if the money isn't there, do what you got to do. Just a side note though, my Fiance spend 10 days in the ICU, then a day in the ER, then back to the ICU, more ER, ambulance ride, multiple procedures, more doctors and medication than I can count and the TOTAL bill for all this crap out of our pocket so far? About $2,000. That's insurance. Without, my Fiance would be considering bankruptcy right now, these were unexpected, still unexplained, medical conditions. So, while no insurance may be cheaper than paying that tax in some cases, it is far more risky with something extremely important, your health. No one should have to decide if going to the ER this day will bankrupt them.
Lowering "other" necessary bills: Lets say you have student loans that you are struggling with. Did you know you can go to an "income" pay back plan? Or you can consolidate? I won't get into it too much, but check out nslds.gov or saltmoney.com for more details. (I've spammed too much so far!) There are ways to lower this burden if you honestly are having a hard time making ends meet.
Other bills, like car payments. Now, if you can't afford it, considering getting rid of that car! I know, scary. But, if you can bike, bus, walk, or car pool. You could save yourself on insurance, gas, parking, and car payments! Now, if none of those options are available to you, then yeah... keep the car. I bought mine because the bus is evil and I was sick of men grabbing me, following me, and I was hit and slammed into the wall on the bus once. No thank you. Biking was the day of the physical attack as well, far too rainy to safely bike home (the path was flooded!). So yeah... I got a car. Now, if you need the car, see if you can drop the expense of having one.
Carpooling really is a great idea. I have a co-worker that lives 3 blocks from me, I pick him up in the morning. He pays me some gas money, and we split the monthly parking bill. Also, someone to talk to on the way in!
Monthly parking passes can also be far cheaper than paying day to day. Also, parking outside of the city and walking 5 blocks in can save money (and hey! Small amounts of exercise!). Seriously, the passes or daily parking next to my office are about $15 a day. Where I park? I'm talking about $2 a day, and that's split!
Consider trading your car in for a better gas milleage car and maybe even a bit less money.
Cost benefit of paying the car off! Can you afford to drop more money on the car bills? What's the interest rate? Penalties for early pay off? If the benefit of paying the car off outweighs the disadvantage (For instance, I get FAR too great a return to worry about paying my car directly off. The interest and dividends I earn outweigh the dropping of money on my car with a low interest rate due to great credit). See about paying it off completely. Also, again, call the company about lowering bills, a lot of companies will work with you if able. You may pay MORE in the end though. If you extend the paying period for a year or so, but all else stays the same, you will be paying more in interest expenses. Just an FYI.
OK
Now that we have the necessities covered (and maybe even lowered) we know what we can have "left over." I'm a tax person, and I can't tell you how many people live pay check to pay check and when the April 15th tax bill rolls in they just aren't expecting to owe. Yes, a lot of people get refunds, but personally, if you do it right, you shouldn't get anything back and you shouldn't owe. I have it down for the past 4 years that I've either owed $50 or was refunded $50. In that range. I'm good. So, how does that work and why don't you want a big refund?
Message me if you want a better estimate on taxes or use a tax calculator for free in lots of places on the internet. Taxes can get a tad complicated or be SUPER easy in given situations. States, social security, and medicare also factor in. If you know what you will owe BEFORE withholding, then you can get a better idea of "take home pay" which is money to use on other bills. Then you just make sure to have the taxes set aside (or withheld for you) before April 15th rolls around. I personally attempt to get it so I don't owe and I'm not owed. Why? Because the amount you get in a refund (assuming no credits) is basically what you lent to the government interest free and your money sat in someone else's bank! Time value of money is a big deal. for instance, I pay $3,300 TOO much in taxes (get a $3,300 refund) over a 12 month period. That's approximately $275 I paid TOO much each month. If I dropped this $275 a month in a mutual fund with a personal rate of return of about 16.4% (Which is what one of my funds is currently getting so this is a realistic number for a risky fund) then You could potentially earn $5,396.00 in dividends and capital gains assuming that rate stays constant. Seriously, do it in excel. PV:0, R (I): .164, PMT: 275, NPER 12, Ending compound (or zero). Then subtract your contributions per month. That's the math. You can check it on the internet. Now... this is a VERY good rate or return because I'm invested in high dividend payouts and VERY risky stock. (More risk tends to lead to more gain), I also reinvest all my dividends so if I get a payout of $127 (my last payout) all that goes back to stock and it grows greatly. Stock market takes a hit though, and this particular savings can come crashing down, so, don't put all your eggs in one basket so to speak. You can also drop this $275 a month is a nice safe savings account. Say a .75% interest (as my 6 month of emergency funds is currently stores, so also a realistic rate) Now, assuming you start at $0 and add the 275 each month, you are looking at potential savings of $175 in interest income. That's a non-risk interest bearing savings account with Capital one 360. No yearly fees, no transfer fees. Etc. In other words, if you consistently get a LOT of money back from the government and you are NOT using credits (details below) you should really ask to revise your W-4 and get less withheld (note, you want to make payments through the year though, as not doing so and owing a lot in April can add penalties). Also, if you owe a little (say $200 from bad calc) then you have it in that savings! This is also ONE year of savings. There are a lot of funds out there to pop it into. I personally wouldn't recommend a savings account for anything except something like an emergency fund that you want NO risk with. Inflation often out grows the interest income. CDs are about the same. If you can pop money into bonds, safest ones are Government, then that's a good bet as well. Also, a lot of the time you can drop your refund into US savings bonds. If you don't make a lot of money and don't have complex taxes (say no rental or K-1s or craziness) you can get your taxes done for free at places called "VITA," I volunteer at these places and they are good.
Mutual funds are probably better than stock, you can find a few good ones out there that have no fees like Vanguard for instance. You can pick risky funds, dividend funds, foreign funds, etc etc etc. You can even personalize funds with some companies if you refuse to invest in things that go against your personal beliefs. I personally wouldn't buy stock right off the market unless you are more familiar with it. Mutual funds are a great way to go. And generally you get more for your buck. (Mine have grown substantially). If interested, learn more of course. Go into a company and sit down and talk with someone. Shop around, learn a lot before dropping money into an investment.
OK! So, I mentioned tax credits a few times. If you do get a lot of money back, but your withholding is less than that? You're probably getting credits from taxes. These are also easy to find, usually second page of the 1040 you files. Child tax credits are very common. About $1,000 a kid. Education credits are common if you're in school. Another common one for low income is something called the Earned Income Credit. This is for very low income and if you are "earning it" such as having your own business or working. You won't see this come in if you only get things like SSI or Unemployment. It's also for low income earners. Check your tax return from prior years for this, if you see it, you most definitely would qualify for energy credits, medicaid (if your state has that set up), and other assistance. If you are getting these credits, I would hope you are having very little to no withholding from your paychecks. Another great credit many people don't know about is the retirement credit. If you make under a certain amount, you can essentially have the government "match" your 401K contributions. 30K is the limit for singles, so if you make say... 20K a year, and drop money into a 401K, you can get a low income retirement credit for a percentage. (20% currently for this range) SO you put in $1,000 into a retirement plan and make about 20K, book, credit for $200, and you're saving for retirement. Now, if you make too much money, then you don't get the credit.
http://www.investopedia.com/articles.../05/022105.asp Also, if your company does matching or profit sharing, you should REALLY try to do a 401K to take advantage of practically FREE money. We often don't think about retirement, but it's a good idea. Talk to HR rep about if your company does matching or profit sharing. Also talk to banks or funds about investing in your retirement. 401K is pretax, pay tax later type of account, and Roth is pay tax now type of account. I would talk to an adviser to decide what's right for you. Most common I think is the basic 401K. With that in mind, if your company does ANY kind of stock options, try try try to get in on this! It's such a good way to make good money! Again, not all eggs in one basket (think of the people that put all their money in stock options with Enron... eesh). But really, employee purchase stock option is basically buying your companies stock at a discount (this does create a tax burden as this discount to FV is considered an income). But, you get them cheap, and if you're company is doing well when you sell? Boom. Also, if you get a chance to negotiate salary, some companies will allow you to talk your way into Restricted Stock units (stock held for a period of time until it "vests"). The vest is when the "income" is taxed. But you don't put any money down on these and once you sell if when you see the full income, the "vest" date value to the "Sale date" value is the taxable "Gain or loss" that will be taxed when you sell. Once they "vest" the income will show on your W-2, not much for you to worry about there. There are a few more options with companies, but these are the most common... and I'm all ready writing a novel.
OK! Now that we know approximately what we will spend in taxes (add state tax to your calc and 1.45% tax in medicare, 6.2% on SS (if you make more than 117,000, this will change a tad). You can subtract all the taxes from your income, divide by 12, then subtract your current Necessary bills. Boom, we have a monthly amount that we can spend.
So, recap.
Total income less taxes (SS, Medicare, Federal, STate)
Divide by 12
Subtract out: monthly Rent, Water, Trash, Energy, Phone, Internet, Insurance, other monthly bills owed.
Get monthly spendable income! YAY!
Now that you have your monthly expendable income, and necessities covered. you need to create a realistic spending budget. And I mean realistic. Sure, you can save a lot of money by NEVER doing anything fun, but I highly recommend adding money to an entertainment budget. What's the point in life if you can't go out once in a while? How much you add depends on what you like to do, and how much you can afford. I personally have a rather large entertainment budget as I love love love going to shows, bars, restaurants, meetups, mini vacations. I can afford this currently (yay for no kids at the moment, one day though!). So I love my large budget and take full advantage of it. But, about 4 years ago, I was constantly broke so my budget was very small and most my entertainment was free or ridiculously cheap. I'll go ahead and give ideas:
Cheap entertainment:
1) Meetups that are free or cheap. Meetup.com has people that are looking to meet people that are like them. You can find hiking groups, tennis groups, volley ball groups, work out groups (bonus for weight loss right?). You can also find book clubs that meet at someone's house or meet at a wine bar or a coffee bar. You can go and not even purchase something if you wanted and just talk about the book. Or if you're into writing, they have those too. Seriously, I love meetup.com. Great way to make friends, try new things, and that's how I met my Fiance. It was a bowling meetup. ($1 beers, and $1 games for college nights).
Other cheap entertainments are checking out the local college (if you have one). They will have cheap plays, parties, events, or sometimes hang discounts for clubs and bars on bulletins.
Not into party live? There are SOOOO many museums, art complexes, performance centers that have "Free days" or discount days. Also, arriving to shows right before they start, sometimes they sell the tickets at a serious discount 30 minutes before show. I got front row tickets (2 of them) for $20 for Midsummers Night Dream at the Denver Perfoming Arts Center once just for taking advantage of their selling of tickets before the show.
Need more ideas? I have a million ways to do fun things on a budget. Especcialy if you live in Denver. I was poor for so long, that I learned how to save money, fix credit, and enjoy life on pennies.
Ok, other things in your budget depend, but you should also really see about getting a savings account budget. Once you establish bills, groceries, entertainment, clothes (or a misc fund), gas, parking, etc... you should hopefully have some left over. Really try to get this into some form of savings. Even if it's a savings account. Like I said, I have my emergency fund in a savings account. (Half is in bonds, half is in the savings). Just because it's low risk and it's there for emergencies. Having it has saved me so many problems in the past. When I first started it, I only put in $20 a month. That's all I could really afford, but it was something. Eventually that got bigger and then I had 6 months of all my necessary bills in savings/bonds. Then I started adding this to mutual funds, and I also add a lot more now as well. (I'm saving for BIG vacations).
There are also a lot of other ideas to cut down on expenses that aren't listed above.
Try food banks. If you are struggling enough, see about going to one of these. You can get a few weeks of groceries completely free. Also, see if you qualify for SNAP benefits. No one should struggle so much they can't eat. If you aren't struggling that much, then this message is for other people that might be. I donate to food banks because there was a small part of my life that I didn't make any money and only paid rent and energy. I was thankful I didn't need to starve, now I donate to them because they really are great programs for families.
To cut back on coffee: Make it at home. Seriously saves money. OR, if your company has a machine, just get it at the office!
To cut back on groceries: don't buy name brand items. Medicines are a great example. The name brands will have the SAME active ingredients as the cheap labels and work the same. You can also save a lot of money by buying the "great value" brand vs the name brand, and often the same ingredients.
Frozen veggies are cheaper and last longer. Make sure you get a brand that doesn't add anything to them.
Get the "membership" cards. These are usually free and they can give you BIG savings for things you buy anyway. I got the king soopers card, it's free it gives me gas points, and I will save anywhere from $20 - $50 a shopping trip.
Credit cards are NOT EVIL. It's how people use them that can make them evil. A lot of cards have cash back. Now, this depends seriously on credit as well as credit limits, but if you qualify for a high cash back card with a big limit, you can really save money. My card gives me 1% cash back on all purchases, and 3% on all gas purchases. Also, no fees. I earn money while I spend. The trick with credit cards? Pay them off every month and on time. Also, don't load them too much. I only put on my card, what I would spend normally. (What goes in my budget). When I get groceries, I don't overload my card, I just get what I came in to get and put it on my card. That bill is paid, in full, right when it's posted. I get a cash back, and it's an incentive to make sure I don't over do it as I try to balance credit limits.
Also, make shopping lists before leaving the house. You'll not only not "Shop while hungry" and just add a bunch to your cart, but you'll also only get things you need.
Since you like shopping, I would add a budget to that as well. From dieting, I've learned we can't just completely get rid of things we love. Maybe you shop on a smaller budget (one that fits into your budget) and you go to cheaper places even! Thrift shops, garage sales, things like that. Also, Garage sales of your own may unload some of the things you bought that you now realize you don't need. Make some mullah!
Hmmm... I've gone off a LOT. And I even have more advice. I was seriously in really bad shape for a while. I moved to the city at 17 on a scholarship for school. I got depressed, got fat, and dropped out. My parents took off to Australia and I didn't really know, nor care, about anything. I destroyed credit (I'm talking delinquet accounts), and I, at one point, was so broke that I sold blood for money and still didn't have enough for food. I did a lot of weird things to get money (nothing illegal, and nothing sexual). Just things like events for a day hauling water, or walking around town with a shovel after it snowed and asking people if they wanted someone to shovel their drive. I survived, but barely.
Now, I went back to college (full ride scholarship again, I'm just a damn good essay writer
). I worked in Financial Aid, I now do taxes and volunteer for low income taxes. My credit went from a dismal low score to a 720. I paid off my debts by scrounging, making calls, learning to work with debtors, learning you write "good will" letters, and, after 7 years, the ones I paid but couldn't get rid of, just went away. (There were about 2 of them). I've learned about credit, how to build it, how to ruin it. I've learned to make a budget to live with, and how to have fun when I have NO money. I'm now in a good place with money. It took a long time and a lot of training as well as learning to negotiate salary and bonus. But I got here. If I can do it, I imagine anyone can. I also know a lot of single mothers with multiple kids and no support that have gotten to a good place financially. (I have met a lot of low income people volunteering as well as working in Financial aid). It's possible, just hard.
Oh, and mint.com is a good place to start. You can also download other budget apps for your phone if you want to try them. I use Dough for the iPhone.
Living on a budget
I guess we just have to build better habits.
