Friday, July 11, 2008

Day 1: Make a written budget

Today's SMID (Save/Make Idea of the Day) is to make a written budget for this month. Now before you roll your eyes and say, "Oh, that's original," with as much sarcasm as you can muster, ask yourself the question: Do I have a written budget, meaning a plan for this month, where every dollar is spent on paper before I receive it ("on paper, on purpose," to borrow a line from Dave Ramsey)? If not, I cannot imagine a scenario in which a written budget would not save you at least $100 over the course of a year. Even if you do have a general budget, looking at this month specifically, as well as re-visiting the general budget, can be extremely productive.

My husband and I recently developed what we call a "bare bones" budget where we cut $1100 from our monthly expenses (to be implemented gradually over the next few months, since there are some areas where we know we can save, like insurance and cell phone plans, but it will require some research before we make the switch). I honestly thought we were pretty frugal people to start with, so I was shocked that we found $1100.

So start where you are: if you don't have a budget at all, make one. If you have a general budget, as we did, make a budget specific to this month. No 2 months are alike. If you already have a specific budget for this month, give yourself a pat on the back, and then look at it again: is there an area or 2 you could cut by just 27.3 cents a day? There's your $100 for today!

As we start our running tallies for the year (explained next), I am tempted to put $13200 (the $1100 we cut times 12 months) as the projected savings for today's SMID. Wow, wouldn't that start the tally off with a bang! But since many of the budget areas we cut are fodder for future posts, I'm going to be super-conservative and simply say that the exercise of doing a written budget saved us $200 for the year. In other words, we will discuss (and give the tally credit for) what we cut in the days to come, but for today, we're just giving credit for the discipline of having done the budget.

Here's how the running tallies will work:

Savings based on days tally: $100
as of Day 1. This one's easy: $100 times the number of days in. Since this is day 1's post, the expected savings so far is $100. Next post will be day 2, so tally will go up to $200, and so on.

Projected end-of-year savings tally: $200 as of Day 1. This is the tally of each day's projected savings for the year. Since our conservative estimate for today is $200, we add $200 to the tally for day 1, and we will add Day 2 tomorrow. The reason that this tally exists and is different than savings based on days is our goal is to save a minimum of $100 per day. Some days we will attempt to save more, like today, and we want to make sure we give ourselves credit!!

Actual realized savings tally: $0 as of Day 1. This one's the kicker! How much have we actually saved year-to-date? Until day 365, this will always be lower than the projected end-of-year tally because, well, we haven't reached the end of the year yet! This one's a little harder to figure too, so each day's SMID will include how we plan to calculate success. Today is very subjective since we're trying to putting a value on the discipline of making a budget, so here's what I decided: Since $200 is today's SMID's projected savings for the year, divide by 12 to get $16.67 a month. On the last day of each month in which we actually make a written budget and stick fairly close to it, we will add $16.67 to our actual savings tally; on July 31, we hope to add $16.67! Until then, today's SMID won't have any "actual" savings.

Don't worry, the tallies will never have this long of an explanation again! I just wanted to explain the math in detail so you can follow me from here on out, and more importantly, so you can post your own running tallies as we go!

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