My third step to getting rid of my debt was to Make a Budget. Now I know that when most people see the word Budget they collapse on the floor, trembling and mumbling incoherently. This should not be the case because Budgets are your Friends. Repeat after me. Budgets are your Friend. Okay, let’s get serious again.

I think that one of the most important things for me was to create a written budget. The next important thing was to make sure I could stick to the budget. If I went over in one category once then I would note it and then see what happened the following month. If I was able to stick with the budget the next time then I would forgive the slip up last time.

However, if I continually missed the budgeted amount then it would be time to seriously look at my budget and take steps to correct what was happening. So the major steps are as follows:

Set up a written budget.

Monitor the budget.

Make corrections as necessary.

I have my budget set up in Microsoft Money so it is easy for me to quickly glance at the charts and figures and see if I am on track or not. I can also get comparisons over time and month to month so that for the times when I am not at the budgeted amount I can see whether I have moved up or down in any category.

Now while it is nice to have a budget you do not have to dictate your life by those figures solely. You do need to work a little bit of flex into your budget so that you can take care of emergencies. You can do this in a number of ways:

Overstate expenses

Understate income

Emergency fund

Flex fund

These are just some of the ways that you can build a little leeway into your budget.

Overstate expenses: Some of your expenses are fixed so there is nothing you can do about the figures you put in here. This would include things like the rent or water if you pay a flat fee (for those living in some apartment complexes). There are some expenses that fluctuate, like electricity, and this is where you begin to overstate. If you have been spending an average of $70 on electricity why not state it in your budget as $80. That way you allocate the $80 for that purpose and reduce the amount of disposable income that you have. If the bill comes to less than $80 then you have the leftover money to put in your savings or in your flex or emergency funds.

Understate income: If you work for a salary then this point will not apply to you. However if you get paid hourly then you may find this useful. You can also understate your income if you freelance or do paid side work like writing for PayPerPost. If you get opportunities that pay out $10 for the month you can state your income in the budget as $5 so that you do not bank on the money coming in. The thing that I do is to list about every other paid post’s income so that way I do not think I have too much coming in and try to find a way to spend it.

Emergency fund: The emergency fund would be your high yield savings account that you send automatic transfers to. You ARE doing that already right? My emergency fund, also known as the Never go back to Fresno Fund is held at ING. (On a side note, you can get $25 for opening a new ING account. Just let me know if you are interested in the comments and I will send you the link.) You do not have to put in a huge amount every period into your emergency fund. Whatever you can do is fine, don’t let anyone tell you differently. Right now I am sending a whopping $2 a month to MY emergency fund. It is a small amount but that is what I can afford and I am proud. Yes folks, only $2 a month….but that is better than nothing. So set yours up today!

Flex fund: A simple concept. This is separate from the emergency fund. Your flex fund should be a separate savings account where you put in miscellaneous income. You keep the emergency fund for emergencies but the flex fund can be used for daily purchases. You find a quarter in the grass and that goes into the flex fund. Then when the electricity bill goes to $83.00 (see Overstate Expenses above) you can move the money from the flex fund to the electricity account and pay that bill with no problem. Then you still have your emergency fund for that major expense like the air conditioning breaking down on a 102 degree day.

I am sure that there are many more ways you can manage your budget but these few tips can really help you to save money because you know where your finances are heading and you can plan accordingly.
Although this is NOT a sponsored post you can

Please take the time to read Step One to Getting Rid of Debt and Step Two to Getting Rid of Debt.

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