Archive for January 2011

Gas Budgeting could Save you lots of Money

When creating your budget, and assuming you have a car, one important item is your gas spending. With gas prices always on the rise-with the rare exceptions here and there-it is important to have a good idea of how much money you need to allocate to filling your car.

Fixed or Flexible amount?

Should you allocate a fixed amount in your budget for gas or should it change, after all, our driving may change depending on the day and week etc. Personally speaking, I have set a fixed amount but you may want to do it differently. You can experiment with both until you have a good idea of how much you need per cycle (cycle is how often you get paid or how you have planned your budget) The good thing about a fixed amount is that you force yourself to drive within that limit and not waste money on any unnecessary trips. Conversely, when your budget cycle is over, you may find that you have leftover from your gas money which you can roll-over to your next budget cycle or simply move them to your savings.

Given the reality of our world today, gas prices will only go up, so it is important to be well-aware of how much you are spending on it. In fact, gas could be that one item which is sucking most of your money and leading you to ask “where did all my money go?” By budgeting for it, gas price fluctuations will not impact you a lot, and you will be ready for any price shocks.

I have been allocating a certain fixed amount (revised every few months) on my budget for gas purchases and I can confidently say that it has made a huge difference. In addition to saving me lots of money, it has helped my budget overall. If I don’t allocate a fixed amount for gas – enough to drive for work and pleasure – it means that I am spending blindly and end up spending more than I should, which will impact other items in my budget.

Of course, you will have cycles or weeks where the allocated money is just not enough. What do you do then? Do you stop driving? In situations like these, and I have experienced them myself, you have to use another item in your budget to draw money from to allocate to buying gas. This could be from your ‘Personal Spending’ , ‘Emergency’, or maybe another flexible category you have which could have excess money for that week.

Even if you have set a fixed amount on your budget for gas, you can still save even more money. In other words, you don’t have to spend every penny allocated to gas. You will go through some cycles where you end up with leftover, which is always nice. To achieve this, you will have to do a bunch of things, including less driving, smarter and more efficient trips, taking public transit when possible, combine multiple trips into one and so on. And of course, there are other things you can do to your car to ensure better fuel mileage. Click here for some tips.

How can others Afford big purchases while you can’t?

Your friends and coworkers are buying new cars, taking vacation after vacation, and seem to be able to afford anything they wish to get their hands on. You on the other hand, can’t find money to buy even the affordable items.

Why are your friends and others around you able to afford these items while you can’t? In fact, some of these people are not even employed, so where do they get the money from?

No, I am not feeling any jealousy or envy when I see others buying things that I can’t afford. It is a simple question of curiosity. I would like to know what these people are doing to be able to afford these items, when I am unable to.

Well, I have done a lot of asking around, and the results were a little disappointing. Most of these people couldn’t even afford what they were buying, they simply put it on their credit cards, line of credit, or worse yet, refinanced their home!

You see, it is not worth being jealous of what they are able to afford, which you can’t. They are simply borrowing to buy. But they will have to pay that money back, sooner or later, and with interest. In other words, they can’t really afford what they are buying, but they don’t care even if they have to borrow to buy it. Call it ‘impulse buying on steroids’

In our ‘5 Principles of Finance and Budgeting’, we talk about the need to be ‘patient and disciplined’ and it couldn’t be more applicable than in this situation.

Today’s culture of instant gratification and wanting something right away is not ideal and can’t be sustained forever. The financial meltdown of 2008 can be attributed, to a large extent, to all the careless borrowing and spending on things that people couldn’t otherwise afford.

This is why you need a budget, to allow you to save for things, so you don’t have to borrow and be in debt for a long time.

Budgeting is about Organization not Restriction, Efficiency not Sacrifices

Talk about ‘budgeting your money’ and some people get the wrong idea. They picture people restricting themselves from spending money, sacrificing their fun, and other unwanted and boring things. But they got it all wrong.

The fact of the matter is, setting up a budget helps you do everything you need. Without a budget, your spending is all over the place, and you risk overspending on certain things and having little or nothing for other items.

Personally speaking, before I started following a budget, it was very common for me to spend my paycheck within the first few days, before I even had a chance to pay other things including insurance and phone bills. This cost me a lot of money, including those hated ‘NSF’ charges by the bank. After starting to follow a budget, I am yet to experience these issues again.

Following a budget has also helped me do things that I couldn’t do or purchase before. Budgeting is about organization and not necessarily sacrifices. If you are reasonable and don’t have mountains of debt, your budget will make your life easier and more fun.

For those people who still think that budgeting is a waste of time and will force them to sacrifice certain things in life, I urge you to give it a try for at least 2-3 months.

At the end of the day-and this is the very definition of economics-our income and resources are finite yet our wants and needs are not, so we have to work and be creative with what we have. Otherwise, we wouldn’t need a budget.

Go ahead, create a budget, it will help you live a better life for now and in the future. Guaranteed!

Wealth and Health: more Related than you Think

Can good health lead to more wealth? Conversely, can being wealthy lead to being more healthy? There are a multitude of answers to these questions, but in general the answer is YES in most cases, especially when you take the time to analyze the relationship between the two (health and wealth)

Being Healthy is Good for your Money

For me personally, and for many more, the relationship is quiet clear. Being healthy is to follow a good exercise plan and eat healthy. Eating healthy often means staying away from junk food. By staying away from junk food, you are killing an addiction which forces you to go back to the drive-thu window over and over again. At the end of it all, this is just making you leak more and more money from your wallet. I don’t need to tell you that this series of related events is not good for you.

The Psychological Factor

It goes beyond just not eating junk so as to be healthy and save money. The psychological effect of this is even more profound and powerful.  If you get into the habit of working out and eating healthy, you will want to extend that to how well you manage your money and finances.  Just like you work out at the gym and shed lots of sweat to cut body fat, you will want to apply that to your own budget and trim any extra fat from it.  This can be in the form of these frequent stops at ‘McDonald’s’, ‘Starbucks’ etc. By avoiding these places, you are hitting two birds with one stone: trimming the real fat and trimming the financial fat.

Long Term Results

In the long term, and if done consistently, you should see both your health and finances moving in the same positive direction. You will also notice that as you work out harder in the GYM, you will also want to match that by saving your money and not spending it on useless and junk food.  Conversely, on days and weeks where I don’t make it to the GYM, I lose my focus and start to spend money on junk food again, which means losing money and gaining fat. The way to explain it, by not going to the GYM and working out, you are losing that positive energy and you end up making bad choices with your eating and diet.