You’ve all heard the news - the economy sucks, the job market sucks, businesses are paying their people less money for more work and everyone is supposed to take it because there are no new jobs.

That’s fine - besides going to your boss, you can’t change that. But you can change how it affects your short and long term financial goals. So get a pen and paper ready… it’s time for Step One in budgeting basics for 2009!

Step One: Gather up all your monthly expenses… FOR THE LAST SIX MONTHS.

You NEED to have the last six month’s of expenses in hand before you even start your budget. How can you put together a realistic budget if you don’t know what you’ve been spending?

Six months is a good baseline for your spending. It hits at least one major holiday, two seasons, etc. If you include Christmas into the budget numbers you will always have a little bit left over at the end of every month.

It’s the first step - and it’s daunting. I know that. But you are setting yourself up for a great financial year if you know what to expect.

So go and find all of your expenses for the last six months. Organize them into their categories and line items… so you can have “House” or “Apartment” as your first category and “Water” or “Electric” as one of your line items.
Come back again tomorrow morning and I will have Step Two in my series of Creating a Budget for 2009 AND a very handy budgeting worksheet in Excel ready for you.

And welcome back… I’ve been neglecting my blog and have been getting quite a few questions in.

My latest question comes from a friend who recently graduated – and doesn’t know what to do with her student loans, she can’t afford to make the monthly payments (she took out WAY too much money, not considering what would happen once she graduated).

If you are in this situation, my best suggestion is student loan consolidation. I had a friend (bookworm’s boyfriend) who had taken a lot out in student loans. He graduated from law school last May but now is over $80,000 in debt – and didn’t know how to make those payments.

All together, the companies were asking for a monthly payment over $600 – and he still needed to pass the BAR before he could practice law. He did and got a job in January, but it still doesn’t pay enough to make close to $600 per month in student loan payments, a car payment, rent, and other normal living expenses.

My biggest tip for him (as it is for my other friend) was student loan consolidation. This can help you save quite a bit in monthly payments – he saved about $200 per month once he consolidated. Now this does lengthen the time period you have to pay back the loan (from 10 years to 25) but you can actually afford to make your student loan payments. And, in all reality, you shouldn’t be waiting the full length of time to pay back your loans. You will be paying more total – if you take the full 25 years to pay back the loan. But you can have substantial savings if you earn the interest rate discounts and take advantage of the fact that there are NO prepayment penalties.

Now, this is really geared towards federal student loan consolidation. After you consolidate your federal student loans, you may be able to pay more towards any private student loans you have – which will accrue a lot more interest than your federal loans. Be sure to put any extra money you have towards these first – you can save a bundle in the long run!

Also, student loan consolidation may help improve your credit rating - most loan officers will suggest that you consolidate your student loans before you apply for a mortgage.

Now, if you haven’t noticed – I’m strongly suggesting you use NextStudent to consolidate your student loans. I know they are a good company that really wants to help students.

This comment addresses all the responses well:

G says: I really need some advice on budgeting. Whenever I get money, after I pay bills I just want to splurge. How do you keep yourself in check? You talked about the cash method, but I was thinking about that and how much to allot to the miscellaneous and splurge expense fund– do you keep money in an envelope for possible emergencies as well? I don’t know if I could make myself do something like that, but I want to and need to start saving money!

I’ll use Bookworm as an example. I put her on a budget about a year ago. She has a few things we know she likes to splurge on (such as a yearly used book fair and Christmas) so we included that into her budget. Because of how we have it set up, she has plenty of money to cover even a small monthly splurge.

I suggest you check out this budgeting worksheet I created. The tax percentages are all for ARIZONA, since that is where I live. Use estimates if you don’t know exactly what your cost is but ALWAYS round up. If you get paid every 2 weeks rather than 2 times per month, there is a slight discrepancy. I currently have it set so it takes your salary and divides it into the 12 months, not calculated for the extra two paychecks. All you need to do is SAVE those two paychecks. If you are interested in using it and live in another state, please comment and I’ll look up those restrictions as well. I am working on creating this into a program, but that hasn’t happened yet.

Your Steps:

1. Define your goals.
• What are you saving for? (Ex: a house, school)
• How much will you need?
• When will you need it?
2. Enter in your salary
3. Enter in all your known expenses.
• Be sure to include money for fun stuff, a small splurge, eating out or going to a movie. You should budget for at least 2 fun things a month, I suggest budgeting for at least 1 a week. In case you’re worried, taking yourself to a movie costs only about $10, eating out can cost anywhere from $5 - $50.
• Also make sure you include money for emergencies – such as an accident or medical bills that come up immediately.
4. See how much you have left in your monthly budget

From there, you have quite a few options. You can:

5. Save all the extra money so you can meet your goals quickly.
6. Use a little extra for your “fun money” – allow yourself to splurge a little more and save the remainder.
7. Spend all the extra money and don’t save. (I don’t recommend this.)

If you are saving to reach a certain goal, we’ll use getting a graduate degree, you need to figure out how much you’ll need and when you’ll need it. If it will cost you $60,000 to go back to school and you want to go back in two years, you will need to save $2,500 per month. Things you can do to get this much:

8. You can take away “splurge money” and anything you don’t need to spend money on (I suggest making sure you save at least some money to have fun)
9. You can also start investing in CDs, the stock market, etc. in order to have your money grow at a faster rate. What you can earn on the money you have already saved is not included. This will help you reach your goal faster, but there are always risks. Be sure to ask for all the risks associated with this.
10. Take a second job OR make concessions – can you spend less (cut out the daily cup of Starbucks), get a loan, or put it off a little longer?

Luckily, my parents pushed my performance in school hard enough so I was eligible for a full tuition waiver to all state universities and only applied for a few scholarships to cover the cost of books. I still spent an extravagant amount of money for room and board in my first year, I didn’t have a budget (who wouldn’t buy their roommates food when they didn’t have enough money) but quickly learned my lesson.

I’m now in the position of helping others in my family start the search for college funds – some are in high school and others in college – and have some tips for those looking.

1. Start early. If you’re in your junior or senior year in high school and know you want to go to college – start now! It help when everything gets crazy right before you’re about to start college and may allow you to go to schools you wouldn’t have considered due to cost.
2. Submit your FAFSA. It’s easier if you do this online. If you haven’t completed your taxes, estimate and go back after you have filed to correct the estimate (if needed). By doing this early on, you’re putting yourself in line to get the free, or cheaper, money. Do not procrastinate, this is a little time consuming but you’ll be better off.
3. Know what’s out there. There are a lot of ways to get money for school. A few are:
• Federal Grants: free money from the government or school.
• Scholarships: free money from an outside source (companies or private donors).
• Subsidized Federal Stafford Loans: Loans backed by the government that don’t accrue interest until you’re out of school and have a lower overall interest rate. You don’t start paying these until you’re out of school.
• Unsubsidized Federal Stafford Loans: Loans backed by the government that accrue interest while you’re in school but at a lower rate than most other loans. You don’t start paying these until you’re out of school.
• Federal PLUS Loans: Parent Loans for Undergraduate Students that parents can take out to cover up to 100% of their child’s cost of school. These are not need based, so it doesn’t matter how much you make.
• Graduate PLUS Loans: Similar to a PLUS loan but graduate students can take out for themselves.
• Private Student Loans: Unsecured loans that are credit-based. Most students need a co-signer to be approved.
4. Look for scholarships. This is free money and something everyone should look for. There are scholarships for almost every category you can think of – there is even a scholarship for making your prom outfit (suit or dress) out of duck tape! Applying for scholarships is a time consuming process, but is definitely something you need to do if you are looking for money for college. Some places you should look at are:
• Scholarship Search Engine – One of the largest scholarship databases with over $3.4 billion in scholarships.
• Fastweb – A scholarship search with over $3 billion in scholarships.
• Your school’s financial aid web site – this should offer their specific scholarships, some of which you may be eligible for.
• Web sites of places you’re currently involved in. Involved at church? Have an extracurricular activity? You may be eligible for money.
5. Ask for help. There are lots of people who love you and would like to see you succeed – can any of these people help you with your goal? Sit down and have a heart-to-heart with those who may be able to help you. Your school advisor should also be able to help point you in the right places.
6. Sign up for free information. There are a lot of places to get good information on getting money for college. My current favorite is NextPath, a financial newsletter that gives information to students, parents, and recent graduates.

If you enter the serial number of a dollar bill, you can track where it’s been before and after you have - you can also add little comments about where you got it and it’s condition.

Take a look at the dollar Trish (from the previously mentioned blog) found.

What do you think? Would you like to know how far your dollar’s gone? How about all the hands…and other things your dollar has touched?

Any way… Stay tuned for some finance tips - They will be coming soon!

An example: Right before Christmas, my mom asked “Can you go to the store and pick up the following?”

“I don’t have any money.”

“Just use your credit card.”

Well about this time my dad, listening to KTAR like always, heard of Dave Ramsey’s miraculous plan to get out of debt. The basics (at least that I learned) are:

1. Figure out what your monthly expenses are (seems pretty simple, I touched on that in my previous post)
2. Make an envelope for that expense
3. Take out enough cash every month (or every two weeks) for all your expenses and put them in the appropriate envelope
4. Mark the original amount on the envelope. Every time you take out money, mark down how much/what for and do the math. It’s just like balancing your checkbook, you just do it more often.
5. The important part: You DON’T GET ANY MORE money for the rest of the month/time period if you run out.

It doesn’t seem too hard and really isn’t that bad - once you get used to it. It does make it harder to spend money if you stick to that allotment. And once you’ve had a couple of run-ins at the grocery store where you have to put groceries back because you don’t have enough money, you learn how to do the calculations in your head.

Most people say it’s easier for them to spend cash than use their debit/credit card(s). You know how you spend all your cash so quickly? How much more do you put on your debit/credit card? It’s a lot easier to pull out a little piece of plastic. As you see it dwindle (which it can do very quickly), you’ll realize how much you actually spend.

While I don’t agree with a lot of Dave Ramsey’s teachings - really, what does it matter if we spend an extra $50 on groceries when we have the money? I’d rather do that than put the groceries back, he really does have some good points:

• When you know that’s all you have for the month, it’s hard to part with the money.
• You judge your purchases a lot more and decide if it’s really necessary.
• You don’t spend as much and you stay on budget.

Everyone (well almost everyone) has had that. Whether it’s a house, a car, or even an X-Box 360 / PlayStation / Nintendo Wii, everyone is looking to find some money lying around to make that extravagant purchase.

Here are some easy ways to save money without really feeling like you’re on a budget. These will only work if you are NOT currently living outside your means. If you just seem to spend your paycheck every time you get it (your bills do NOT outweigh your paycheck) – there are ways to stop!

1. What are your actual living costs? This should include rent, food, utilities, etc. Don’t forget to include money for going out / dates, car repairs / gas, and other miscellaneous expenses.
2. Do you know how much your paycheck is? Silly question for most, but there are people (like my mom) who have no idea what their actual paycheck is. Compare it to your expenses – how much money do you have left over?
3. Where are you spending your money? Do you even know where all your money goes? Many people have quite a bit of their money that they can’t account for. Are you going to Starbucks or out to lunch every day? These costs all add up.
   

   I have a friend who had to pay for school – his mom was giving him money every month to cover his expenses and it never seemed to last. Once we took a look at what he was spending it on we realized he spent over $300 on food – he was going out every meal, but it didn’t seem like it was adding up because it was only $5 - $10 each time.

4. Once you’ve figured all of these out, decide what you can live without. Do you need to go out to lunch everyday or can you bring your lunch most days? Why not buy a coffee machine and save yourself the $5/day at Starbucks?

These 4 steps take almost no time and can really help you start to save money. It is important to have some money in savings – otherwise what will you do if the horrible happens? If you do all of this and realize your bills outweigh your pay, I’ll visit that later. Remember, you do need to leave yourself money for some treats – it is your money after all.