Real Estate Search Direct

Do you dread creating a budget?  If you are preparing to buy a home, you may be wondering if personal finance budgeting is necessary. 

Ivana Newhouse didn’t pay much attention to her spending habits.  She felt that it would be too much of a burden on her lifestyle to keep track of the occasional mocha latté and a round of drinks at the bar with her girlfriends after work. 

Ivana felt if she kept track of her bank balance, she knew whether or not she could afford to buy that new pair of shoes on sale.  But in the long run, she didn’t know how much she was spending on what.

Ivana and her fiancé, Homer, were planning to buy a house when they were married.  Homer asked Ivana to create a list of all her income and expenses in order to come up with a financial plan for their future. 

Homer felt that without a plan it would be difficult to achieve financial goals to maintain the lifestyle they wanted.  Homer was not just interested in what they could afford today, but also in their long term financial situation. After all, isn’t buying a house a long term financial commitment?

Ivana felt it wasn’t really necessary to track all her spending if she just knew how much to set aside each month for a house payment.  Homer explained that he wanted to be able to figure out what house payment they could afford to know what price range of home to search for.

Homer also detailed what they would do with a budget:

• Save money for a down payment.
• Take annual vacations.
• Save for an emergency fund.
• Save money for gifts and charity.
• Invest money for retirement.
• Raise a family.
• Create a Health Savings Account.
• Send their children to college.

He asked Ivana “Do you think we can manage all that without having a plan?  Can we afford not to know where our money is going?”

Homer knew they would need to cut expenses drastically to come up with the down payment they needed to buy their home, and once they purchased their home that money would be put into their emergency savings until they had reserves to cover six months expenses.

Then that money would go towards their children’s college fund.   

They would need to start their other savings immediately so they wouldn’t be caught short when it came time for Christmas or their vacation.

He explained to her that they could also save  a lot of money by having high deductibles on their medical insurance and using a tax-deductible Health Savings Account to cover the out of pocket medical expenses.

They also believed that they should tithe.  By giving to charity they would increase the abundance in the world which would in turn come back to them in multiples.

When Homer laid out the details of the financial goals he had in mind, Ivana agreed that it would take some careful control of their finances to manage it all.  She also agreed that these were worthy and important goals.

She agreed to listen to Homer about their personal finance budgeting.

Homer told her the following steps were needed:

• Gather all income statements
• Gather all expense statements (bank statements, credit card statements)
• Categorize their spending habits
• See how much money was left over after subtracting their expenses from their income.
• Set savings and investment goals
• Determine how much of their income would go to which categories
• Set up automatic savings plans to meet their goals
  
• Set up a tracking system to keep their expenses under control

Once they had an idea of how much money they allocated to spend in each category, Homer had a plan to manage and track their expenses.

First he would set up an automatic deduction to go to savings so they would not accidentally spend money earmarked for other purposes.

Then when each paycheck came he would put their daily spending money into different envelopes with different purposes.  Ivana would get an envelope with $30 each paycheck for her lattés.  Another with $200 for grocery shopping.

If they needed to borrow money from one envelope to pay for something in a different category, they would write the amount and what for on the envelope.  Then at the end of the month they could evaluate how to adjust their plan to include the unplanned expense the next month.

If you are struggling with creating a budget, setting financial goals or tracking expenses try Money Tree budgeting software.  It will walk you through the process step by step.

Allen Davis
RealEstateSearchDirect.com