Welcome to another edition of Financially Fit Friday, where I offer each and every one of you fantastic financial advice to help ease your mind. Or in reality I share with you what I do for finances, because I am so nerdy and love talking about finances. There said it, nerd over here! You can find all previous post on the Financial Fitness page or here.
Before I start talking about categories, I want to urge you to start an emergency fund, NOW!!! Even if you have been at your job for years, you never know when they have to let you go. Don’t worry Philip and I still have our jobs, but yesterday was certainly an eye opener in the lay off department. Please, please, please build an emergency fund.
The World of Categories
I wanted to discuss the importance of categories. When you are setting up a budget you should identify areas where you spend money and then create a category for it. Here is an example of our categories, areas we have decided we either spend money on regularly, are building savings for, bills we have to pay, and doctor/medicines savings:
Every month each category gets a specific amount of money. For example, every month the charity category gets 10% of what we make for that month. We go through each category and decide how much we need to put in it. Often each month is similar, but sometimes it is different, do to the power bill changing, knowing we are traveling more, or we are done saving for a particular category, like furniture. We make the adjustments, and every category has a specific amount of money that is available to spend.
So I am sure at this point, you are saying, “Great we get it separate our your money, blah blah blah.” The big point is with each category you have a certain amount of money, so if during the month you have spent all your dining out money by week three, guess who is not eating out anymore until the new month? You!
I use dining out as an example because that is Philip and mine’s “fun” area. By have a separate category for dining out, it really helps limit us in not eating out all the time. The category of blow is meant for areas that we unexpectedly spent for the month. Example, maybe there is a movie we want to see, or we need to buy stamps, or we saved enough in it to go see a Braves game in the summer. It really is our what if category, and areas we do not spend every month, so they do not need their own category.
I found the categories really useful in helping me identify areas that are important to us and areas we like to spend money on. I know we can eat out without worrying about having money for gas for the month because we categorized it. It is a great feeling and makes eating out something special for us.
Take a look at your budget and get specific with your categories. Don’t just have a spending category and that be it, try to separate shopping, eating out, or anything else you spend money on regularly. Make the budget work for you!
P.S. I found an article about opening up to friends and family about being frugal and staying on budget. I thought i was really interesting and nailed it on how I feel and why I talk about being financially smart so often. It is from Getrichslowly.org, check it out.
Questions for you:
1. Do you use specific categories when making a budget?
I am a fan of making a lot of categories, Philip has to pull me back in sometimes so I don’t make so many.
2. Is there a financially fit questions you have for me? Ask away!