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Budgeting: 5 tips to make it work


NEWS: Credit card debt in the U.S. has risen to an all-time high of $1.08 trillion. Meanwhile, many consumers started their holiday shopping earlier than usual this year to make it more manageable.

WHAT IT MEANS TO YOU: Welcome to November! You’re probably stressing out about money, debt and holiday shopping. And even if you have a budget, it’s not working.

It’s become an It’s Your Money tradition to take a look at budgeting around this time of year, that stretch of two or so months when most people spend more than they do the rest of the year, then spend the next 10 months trying to manage the damage.

McKinsey & Co., a consulting firm that tracks consumer habits, found that 56% of people surveyed said they started their holiday shopping in October this year, in order to spread out the spending. Meanwhile the Federal Reserve Bank of New York reported Tuesday that American credit card debt has topped $1.08 trillion an all-time high.

If you’re spreading out holiday spending, that’s a good budgeting move. But if you’re using credit cards that you’re going to have trouble paying off, for holiday spending or just for groceries, that’s not a good budgeting move. If you even have a budget. If you don’t, you need to get one now, not in January when the bills come in.

I’m not here to judge, believe me. I know as well as anyone else, that it’s hard to budget when you’re also buying gifts, having parties, decorating and all the other stuff that comes with the holidays. It’s hard to budget in general, any time of year.

In columns over the past 12 months, including this time last year, we looked at realistic ways to cut expenses and increase your income. We went over five things you can do today to fix your finances. We also went over the logistics of budgeting. One thing missing though, is how to actually live within a budget and make it work.

The importance of this missing piece occurred to me a few weeks ago when a relative who is living with two elderly parents as well as her child, and pays for all of the groceries, said she’s “trying” to budget, but just spent $240 at the grocery store. Yikes! That just shouldn’t happen if you actually have a budget and are sticking to it. Unless, of course, you have $240 budgeted for groceries. She didn’t.

If you haven’t read the logistics of budgeting column mentioned above, follow that link and read that, too. Because today we’re going to talk about what happens once you’ve put together a budget and are asking, “Now what?”

1. A budget isn’t a suggestion

Let’s start with my relative who’s trying to budget, but spent $240 at the grocery store, going way over the amount she’d intended to spend. Question one for her is, “Well, what was your grocery budget amount?” She didn’t really have one, just a vague idea about what she wanted to spend based on how much money she had in her checking account that week and what other bills she needed to pay.

Okay. That’s not budgeting. This isn’t to shame my relative. Most people do it this way, with similar results.

If you want better results then when you draw up a budget and sit down with your expenditures over the past several months, figure out what, realistically you can, and need to spend on things like groceries that don’t have a fixed cost, and budget a specific amount for it. If you budget, say $100, then that’s what you spend, and no more.

Like my relative, your response may be, “But [insert reason why this won’t work for your household].” But the big but is that you’ve budgeted $100 for groceries. So, that means you will spend $100 on groceries, and not more.

There are a lot of ways to stick to the realistic grocery goal you set, but it takes hard work. It takes changing habits – not only buying habits, but eating habits. If one family member, for instance, chows down three bowls of cereal every morning, be sure they know that the budget can only support one box of cereal for him a week. If your picky kids all want different meals, tell them what my mom used to say to us, “I’m not a short-order cook.” This is what they get for dinner. Or lunch. Or breakfast. I know! Like my relative you’re thinking of ways that won’t work for you. Okay, then I guess you better just give up on budgeting and keep spending way too much money on groceries.

I know I’m being mean and not understanding your special circumstances, but if you’re having trouble paying your bills, or you’re not able to save for retirement, or handle the next car repair down the road, you need to change something. 

No matter what you change, the bottom line is that the one thing you can control right now is your spending on things like groceries. That means you actually have to control it. The more people in the household that you support, the harder it is to do. I know. Find a way to make it a group effort, and also help them understand how budgeting – and not budgeting – affects them, too. If there is more than one wage-earner in the house, they should be directly involved in creating the budget, even if they’re a teenager with an after-school job. Since every household is different, how this will work is different. Whatever works is what will work. But the bottom line is, it must be a budget that makes sense and that people stick to that will help achieve the household’s financial goals.

So, back to groceries. There are many ways to live within a grocery budget, but all of them will involve changing habits. Common ways to stick it a grocery budget include creating a weekly menu; buying store brands; joining a rewards program; eating perishable food before it goes bad, even if you’re in the mood for something that isn’t part of that week’s menu and would be an added expense.

Have the kids help plan the shopping list and menu. The more involvement the other members of the house have in how the budget will be spent, the easier it will be to get buy-in. 

I used groceries as an example because it’s a constant non-fixed expense that everyone has. But the same strategy goes for gas, eating out or getting take-out, buying things online, streaming services – any monthly expense that you have some control over the amount.

The fact that “everything is so expensive” or that your rent eats up half of your income are realities you must live with. You can’t control those things. You can control how you will live within those constraints.

The biggest budgeting lesson you can learn is that your spending won’t somehow magically match what you’ve budgeted. Once you figure out what you can spend, you have to figure out how you will make it work.

If doing the work and changing habits hurts, remind yourself that having a tuna fish sandwich and an apple may not have been your lunch choice, but even that more expensive meal would’ve been gone in the time it took to eat it, and you would’ve had less money to show for it.

2. Credit cards are not the solution

It’s tempting, I know, to use credit cards for everyday expenses when your budget doesn’t support the things you want to buy. If paying off the full balance of the card every month fits your budget, even if you use the card at the grocery store or to buy things you don’t need, that’s great. But if the charge is going to add to the rest of the balance that you’re paying revolving interest on, then don’t do it.

If you read this column with some regularity, you know this is an ongoing theme. That’s because you can’t talk about budgeting and spending without talking about credit cards. As I mentioned earlier, credit card balances are up to $1.08 trillion, an all-time high. I know that’s not all you! I know it’s hard to get your head around a number that big and figure out what it means to your life. Maybe it even reassures you that, with everyone in the same boat, your miniscule fraction of that number is not that big a deal.

For numbers that are more relevant, take a look at your credit card statement, the part that shows how long it will take you to pay off if you only make minimum payments, and how much you will pay overall. No matter how much interest the card carries, that’s an eye-popping number. Even if you pay more than minimum, but maintain a high balance, you’re paying a ton more than what you spend on the items you used the card for. All that interest adds to your balance, so you’re paying interest on interest. And if you carry a balance you’re still paying for those tacos charged to the card back in 2019.

When you budget, do not budget the minimum payments for your credit cards. Budget payments with a hefty extra amount. One method that a lot of people have had success with is to pay a lot extra on one card (either the one with the highest balance or the one with the highest interest), while paying minimums on their other cards. Once the first one is paid off, apply the amount you were paying on that card to the next one. Keep doing it until you have zero balances. The trick is, of course, not to keep maxing the cards out in the meantime.

While credit cards may seem to be an easy way to stick to a tight budget, they’re dragging you down. Once you get those balances down, you’ll have more discretionary money in your budget.

3. More income isn’t the answer

Another of my favorite topics, as you may know, is increasing your income doesn’t substitute for having a budget and cutting expenses. 

If you have an immediate expense you have to address, getting a second job and using the income from it to pay that expense may be a good solution. If you have chronic issues with making ends meet, though, you must attack the problem from the spending end. You need a plan that’s sustainable (and can be adjusted) no matter how much money is coming in. That means a budget and reducing expenses.

The bottom line is, if you don’t budget, there is no income increase that will help in the long run.

If you do plan to increase your income, make sure that a second job or side gig will put actual extra money into your budget. Also make sure that the extra hours away from home, extra commute, or any other burdens the new job or activity will add won’t obviate the benefits.

Driving an Uber, working for Instacart, making homemade jam, flipping burgers – they all aren’t necessarily magic money-makers. Some come with expenses, some are time sucks that will have a negative effect on other parts of your life, some won’t make you any money unless you’re a marketing whiz. If you are planning a freelance, contract or other self-employed type job, you will have to pay self-employment tax, even if you’re still employed by someone else for your other job. You also have to pay federal taxes to the IRS. 

Those are just some of the things to take into consideration when weighing whether extra income will solve your budgeting problems. I already said this, but want to say it again: If you do plan to increase your income, it shouldn’t be instead of budgeting, it must be part of your budgeting strategy.

4. Be realistic and learn to adjust

When you create your budget, be realistic about how much you’ll spend on expenses that aren’t fixed. Don’t budget so little for groceries or gas that there’s no way to stick to it. We both know what’ll happen then: goodbye budget!

Be realistic as well about income. Don’t budget for income you don’t have, for instance, if you expect a raise, or are planning on getting a second job. Wait until that money is coming in, then adjust the budget to accommodate it.

A budget is also meant to be constantly reviewed and adjusted. You’re not going to spend as much on heating oil, for instance, in the summer as you are in the winter. Depending on your job, you may make more money at different times of the year. 

As pointed out in the first tip, you must stick to the budget you created. Just because you spent twice what you budgeted at the grocery store, doesn’t mean you should double your grocery budget. But you can reassess your grocery budget if you find that despite all the effort you’ve put in, you still can’t feed your household. Just remember that if you increase one item in the budget, that money has to come out of another item, unless your income has increased.

5. Consider professional financial help

If you can’t make your income and expenses work, or it’s just a huge headache trying to figure it out, get help from an organization that offers financial literacy resources or free or low-cost credit counseling. Sometimes all it take is some information, tools and support to make everything come together. 

The New Hampshire Banking Department has a page on its website that lists financial literacy resources for the state’s residents. Your bank or credit union may also offer financial literacy resources. Credit unions, in particular, are proactive about financial literacy and some have tons of information on their website that’s available even to non-members.

Free or low-cost credit counseling is also a great way to learn to budget and save money, or find debt relief resources. The U.S. Department of Justice maintains a list of accredited credit counselors in every state, because people who file bankruptcy are required to take a credit counseling course before they file. The Consumer Financial Protection Bureau also has a web page with advice on how and where to find the right credit counselor, and what to look for so you don’t get ripped off.

The reason to access these resources instead of just Googling is that you don’t want to get sucked into talking to someone from a for-profit debt settlement company or some other racket that’s going to end up costing you money and wrecking your credit. Nonprofit credit counseling agencies that offfer debt management programs also offer a free session with a credit counselor. A debt management program is different from for-profit debt settlement in that you pay the full balance of your credit card debt and it ultimately improves your credit score instead of wrecking it. A program takes 3-5 years and you make one monthly payment to the agency, and they work with your creditors to lower your interest rates and waive fees, so it’s cheaper than trying to pay the cards yourself. It’s a great route for someone who wants to wean themselves off of credit cards and can help build budgeting and spending habits that’ll last a lifetime.

Even though they offer debt management programs, the counselors are required by law to go over all debt relief options with you and give you advice that’s in your best interest, not sell you a product.

Financial literacy information is out there and free. If you are going to talk to a credit counselor or some other debt relief source, do your research before committing.

One thing to keep in mind if you plan to find help with your budgeting and money-management needs – no one who advises you about financial literacy, debt relief or how to manage your money is going to tell you that you don’t need a budget. There’s no fix that doesn’t involve budgeting. Even winning Megabucks. Just saying.

Coming up

In case you’re wondering about financial literacy and what exactly it is, and what it has to do with you and whether it can really help [so many questions!], we’ll talk more about it in December. 


About this Contributor

Maureen Milliken

Maureen Milliken is a contract reporter and content producer for consumer financial agencies. She has worked for northern New England publications, including the New Hampshire Union Leader, for 25 years, and most recently at Mainebiz in Portland, Maine. She can be found on LinkedIn and Twitter.

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