The new year is here. Most of us will reflect upon the past year, searching for our accomplishments and certainly noticing missed opportunities. These reflections will ultimately lead to the creation of resolutions, a list of “go do’s” for our personal growth in the coming twelve months. Now is the time to say “I will do it” (whatever “it” may be) and you will push hard the first few weeks to achieve those accomplishments. For most, this will be a short lived transition as we revert back to the creatures of habit that we are. However this doesn’t have to be the case for one resolution – the monthly budget. Here are some great tips to help get your financial picture in balance and push you to make some other financial resolutions for the coming year.

• It’s not going to be right. Let’s face it, your first budget is not going to be right. If it is, you probably shouldn’t be reading this. Practice makes perfect. Do not be discouraged. You will find yourself looking back in 6 months and laughing at your first few runs at this. This is an ongoing process just like anything else that will need to be adjusted and tweaked. The goal is for you to see what’s going on and be able to be proactive instead of reactive.
• Write everything down.You should have two basic columns – income and expenses. Money goes in, money goes out. You have to get a handle on what and where you are spending. Write down all your expenses – car insurance, rent, mortgage, netflix, gas, food, cell phone, water, gas, electric, pet, haircut, etc. Don’t forget to put down IRA, emergency savings, and other payments to yourself. You should treat these as reccurring bills, not as extra cash or remaining income.
• Follow the money. Now that you have all your expensives listed, give them an estimated payment. Don’t know how much you owe? look at your last 3 months worth of bills. You should have a general idea of what you are expected to pay. For credit card debt, use the mininum payment. Using Excel or other spreadsheet program will help you rearrange the list and more advanced features like color coding.
• Do some math. Now draw a line underneath the final row and make a total label. Now add the income column up, then add the expense column up. Now subtract expenses from the income. Is your number positive? Great job! Is your number negative? this is a major warning sign. You are breaking the cardinal rule of personal finance – Don’t spend more than you earn. You need to find a way to make the income side bigger and the expense side smaller.
• Rinse and repeat. Like I said earlier, you are going to have mistakes. when the bills roll in, find out how far off you are and make changes. Forgot about an expense? write it in (there is where Excel is handy). Copy the information to a new sheet and label it February. Then again for March, April, and May. I think you know where this is going to end. By keeping track month over month you’ll be able to track the changes you made and maybe even check out the progress you make.

Now that is the dirty version of a monthly budget. If you have negative cash flow showing, you have your resolution made for you – fix it. Start selling stuff on Craigslist or eBay. Get a second job selling pizza, or a third job delivering papers. Stop eating at McDonald’s and Applebee’s and start cooking at home. There are many other topics that should be covered when discussing a monthly budget, especially more specifics on how to lower your bills. I’ve got some great examples to share, so be on the lookout. 

If you have a positive cash flow, but you have revolving debt, you aren’t any better. Get rid of that credit card debt. Start paying more off. You have to pay more than the minimum if you want to succeed. You know all those “things” you bought with your credit cards? Sell them.

Advanced tips:

• Color it.  Use colors to highlight different areas of your budget. I’m a big fan of using green for income, red for credit cards and other , yellow for reoccuring bills, and blue for savings/investments.
• Sum it up.  Group your similiar bills and look at the percentage of of your income each takes. If you got more blue than red, that’s a good thing.
• Get Organized. Write down the contact information for all your bills with phone numbers and addresses. This will be helpful whenever you have to call customer service. Also write down the balances on your debts. Looking at this number can be good motivation to push it down to zero.

I am in the process of adjusting my budget. I will post a sample soon that can be used as a guideline.

What suggestions do you have for a monthly budget?