(By Tushar Mathur) Budgeting in Today's Economy is a post originally published on: Everything Finance - Everything Finance - Its all about Money!
While the U.S. economy is slowly improving, there have been concerns that we may see another recession fueled by the economic instability in Europe. Now is not the time to relax budgeting skills you may have implemented during the most recent recession. Instead, now is the time to carefully evaluate your expenses and income.
You Probably Can't Have It All
When budgeting in today's economy, you should accept that you cannot have everything. You probably will find it difficult to buy and maintain a large house, nice car and exciting yearly vacation while saving for your own retirement and your children's college funds. But just because you can't have it all doesn't mean you can't have a comfortable life and a comfortable financial position.
The Four Steps to Budgeting in Today's Economy
The first step to budgeting in today's economy is to determine where you are currently spending your money. You can use online budgeting software or simply track your credit card statement if you use credit for all of your purchase. The important part is that you track where ALL of your money is going. At the end of the month, you may be surprised by some categories where you are spending more money than you thought. I did this recently and was surprised to see that while I thought we were spending about $450 to $500 on groceries a month, we were actually spending almost $600. Over the course of a year, that is a difference of $1,200 that I wasn't accounting for because I didn't think we were spending that much money.
Once you know where your money is going, the next step is to look at where you can reduce costs. Can you cut some of your cable channels without feeling much affect? If you enjoy eating out, instead of paying full price, you can look for online coupons and deals to trim costs?
After you have trimmed costs, determine what financial goals are most important to you. There is nothing wrong with wanting to drive a nice car, if you can afford it. If that is a priority to you, what other areas are you willing to skimp on to fund that category? Eating healthy, organic food is important to us, so we reduced much of our entertainment fund to make up for the extra $100 I discovered we were spending on groceries.
Finally, leave some money for emergencies. Our current economic environment is filled with uncertainty. Emergencies will happen, so it is important to fund an emergency fund. Experts recommend a 3 to 6 month emergency fund, but don't be intimidated by that number. Save whatever you can each week, and the emergency fund will grow. Setting aside money for irregular expenses is also a good idea. Our auto insurance runs $680 a year, so we set aside $55 a month in anticipation of the bill.
Budgeting in today's economy, when money and jobs aren't quite as plentiful as they were 10 years ago, certainly has its challenges. However, with careful planning, you will survive, and hopefully thrive, despite difficult conditions.
What are your favorite budgeting strategies for today's economy?