CloudFi | Your Personal Financial Coach

For those who aren’t used to a budget, it can feel constrictive and cramp their personal style.  You’re used to spending on what you think you need and not worrying to much about a budget.  Here’s a simple guide to relatively pain-free budgeting.

1. Know why you are budgeting

“Every time you say yes to one thing, you are saying no to something else.”

In the case of budgeting, you are saying no to spending something now and saying yes to something more fulfilling and rewarding such as an earlier retirement, purchasing a home, etc.  Set your goal and it’ll make it more motivating to budget.  CloudFi’s personalized financial plan can help you see the benefit of saving now.

2. Figure out how much you’re spending

Before you make any decisions about what to cut, let’s get a handle on how much you’re spending and where.  This used to be a painful exercise that required you to save your receipts and log all your spending.

Thankfully a number of  online money management services can automate this task for you.  They all access your online banking information and automatically collect, categorize and report on it.  The set-up takes 15-20 minutes. Then, you’ll be surprise where all the money is going.

• QuickenOnline - If you use TurboTax, you’ll find this service familiar.  It’s offered by the same company.
• Buxfer - Concerned about giving someone your banking password.  They have a solution to avoid that.
• Wesabe - They have a Cutback tool that suggests easy ways to cut costs.

3. Go after the low hanging, big fruit

To get the biggest bang for your effort, start looking at the largest transactions and the categories with the most spending.    Typically, you’ll find expenses for housing, transportation and food.   Look for opportunities to save several hundred dollars per year with one action.  Here are some examples.

• Lower Your Rent or Mortgage Payment:   This one isn’t easy, but it can save you the most annually.  If you rent, negotiate with your landlord.  If you are an owner, check into re-financing options.
• Lower Your Automobile or Homeowners Insurance Premiums:  With some shopping around, you can save substantial money each year.   You can often get discounts for bundling your policies, being a good driver or taking a defensive driving school course.
• Lower Cost Transportation:  If you’re paying more than $500/m in car payments, it’s worth considering a lower cost vehicle.  Are you able to sell the vehicle and get something reliable that is much less expensive?

4. Get some momentum behind you

Some of the decisions you make to cutback can save you money every month after you’ve made the initial decision. This particularly applies for monthly services such as the following:

• Cable:  Check if there is a lower cost plan or even consider using Internet video like Hulu.
• Mobile Phone:  If you’re service contract is up, you can save hundreds or thousands a year.  BillShrink can help you figure out what your options are.
• Bank Fees: Look through your statements carefully and see if your bank is changing you fees each month.  Those can really add up.

5. Pay Yourself First

Many of us save whatever is left over at the end of the month.  Why not make savings a fixed cost like rent or car payments?  See the article on setting up automated transfers to a high-yield savings account.

Doing this will help you control your discretionary spending because it won’t be in your checking account any more.  Just make sure you watch you balances regularly and don’t get hit with an overdraft charge.

6. Live like a millionaire.  Just don’t spend like one

We all like to enjoy life by eating well and playing hard.  There are lots of ways you can enjoy the good life without having to spend like it.  Here are some examples.

• Restaurants:  Many of the best restaurants participate in a restaurant week where you can get a price-fixe menu for much less than their regular prices.
  • New York City
  • Washington DC
  • L.A.
• Vacations: Consider traveling during the off-season or a local vacation that you can drive to.