Saturday, April 17, 2010

The Joy of Budgeting

This past month is the first month that I've ever really given myself a firm budget and stuck to it. I downloaded a 'Personal Monthly Budget' from MS Excel, input all the necessary information (including taxes, health insurance premiums, car insurance premiums, etc.) and knew exactly how much I'd have leftover. I then used that 'leftover' money to pay down my debt. I am happy to report that I have paid off my credit card this month (just the interest charges from last month - a total of $6) and my student loan (7 months early)! Next month, I'll also pay off the bed that I financed, so other than my house, I'll be debt-free. After that, the plan is to build up my emergency fund. (The concept for this type of budget and the impetus to actually pay off my bills early despite the twitching it caused when I wrote big checks is credited to Dave Ramsey. If you're interested in budgeting and paying off debt, I highly suggest checking out his Baby Steps, either on his website or by borrowing one of his books from the library.)

One of the best things I did last month was to open a savings account. I've learned that if the money is in my checking account, I will spend it. I now have a modest emergency fund that I will be paying into for the next year or so in order to get the 6 months of expenses that experts recommend. I've also consulted a financial advisor to see about putting my emergency fund into a money market account. I'll likely keep what's in my savings account there, as I like the ability to just transfer it into my checking account for a small emergency (and wanting to buy a new television is NOT an emergency), but for the main part of it, it'd be nice to get more interest than .05%. Yes, that's five hundredths of a percent. I earned a whole $.04 last month. At that rate, I'll be a millionaire ... never. ;)

It's amazing how much more in control I feel because of the budget. I know what I'm spending, how much I can spend, and if I buy something not in the budget (as in the case of a book I've been waiting for for months), it has to come from somewhere else (in this case, it ate into - forgive the pun - my food budget a little.) Now, it's not to say that seeing I had exactly $12.93 in my checking account for a good week before I got paid didn't make me begin to panic. However, it did make me realize that I can't go out and spend whenever I want. What a concept, right?

Overall, I have to say budgeting has made me a much calmer person (except for the mistake I made for counting one receipt twice which threw off the totals!). I don't know why I kicked and screamed for so long about having a formal budget. I was always okay with 'If I have enough in the checking account to cover it all, then I'm good' method of budgeting. And while that's fine and good for some people, it's not enough for me. It ignores one very important facet: it doesn't allow me to become financially independent with savings and retirement accounts. Budgeting will allow me to build my savings and eventually contribute more to my retirement savings.

I like that.

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