THE DAY OF “IT” HANDBAGS, DESIGNER DOG WEAR AND USING YOUR HOUSE AS AN ATM ARE GONE. PERHAPS FOR GOOD. TODAY, THRIFT IS HIP.
There may have been a time when the “American way” was paved with credit cards. Not so much anymore. When paychecks are disappearing, the housing market is falling off a cliff and the national economic situation is less than healthy, people are following in the footsteps of past generations who “paid their way.” Budgets are back in vogue.
Today, it’s hip to be thrifty. Why else would the revenue of Family Dollar stores pop up more than 8 percent in a recent quarter while revenue at Macy’s and most full-price retailers decline? Why else would The New York Times devote a half page to “The Humber Coupon’s Resurgence.” When else would you see Vogue magazine ask top designers for their holiday gift picks under $100?
The question is do you know how to budget? Do you know how to create a spending plan that makes sense given your financial life, then put it to work?
KNOW YOUR GOALS
Budgets work best when there’s a why. So ask yourself these questions: Why are you doing this? Are you feeling that you’re not saving enough? Are you fearing you’ll be caught up in the next round of layoffs? And what are you aiming for? Do you want to be debt free within 5 years? Do you want to build a six-month emergency cushion or to fund at least part of college for a child? The answers give you something to come back to each time you’re tempted to fall off the plan.
KNOW WHERE YOUR MONEY IS GOING
The easiest way to build a budget is to figure out where your money is going, then decide what you can change about that. Monitor your monthly bills—there’s a paper trail for those. Keep a notebook in your bag or briefcase and log everything you spend. Or stuff all those receipts into your wallet and once a week download those into a spreadsheet. Or you can sign up for an online service like Geezeo.com or Mint.com and have your bank and credit card transactions downloaded into a program that will analyze your spending.
KNOW WHERE YOUR MONEY SHOULD GO
Here’s a look at how your money should break down. This is where your net income goes, not your gross.
- HOUSING: 35 Percent. This includes not just your mortgage, but utilities and maintenance, taxes and insurance.
- TRANSPORTATION: 15 Percent. Again, not just your car loan but the money to pay for gas, upkeep, etc.
- OTHER DEBT REPAYMENT: 15 Percent. Things like student loans, credit cards or other debts.
- SAVINGS: 10 Percent. Non-negotiable.
- LIFE: 25 Percent. This is everything else. Your clothing, travel, health care, fun.
MAKE SOME CHANGES
The easiest way to limit your cash spending, notes Kathryn Finney, founder of TheBudgetFashionista.com, is by spending only cash. Every week take out all the money you’re going to use, put it in an envelope and use that. When the money is gone, you’re done for the week. Small changes are easier, so make those first. If they don’t do the trick, look at larger items including the car or cars you’re driving, the house you’re living in or the trips you’re taking.
SHARE THE WEALTH
Once you’re with the program, share it with those around you. Budgeting is much more fun—and you’re likely to be more successful—if you can involve those close to you. When a friend or spouse shares this goal, then you have that extra boost of willpower to not eat out or purchase that bigger television!