Maryland-based financial adviser Lamont Corprew, a Certified Public Accountant, is an advocate for having an emergency fund. "Make saving for an emergency a a priority, because you never know when you'll need it," Corprew notes. "But keep it separate from your regular savings account. Commingling your emergency fund and other savings can be a spending temptation that's difficult to resist."
Because monthly rent or mortgage payments generally are fixed, look at automatic bill-pay options for making payments, says Corprew. But he cautions consumers to always have enough money in the bank before the landlord or mortgage lender takes it out every month. Washington, D.C.-based senior mortgage banker Steven Pearson reminds homeowners that if the mortgage payment is due on the 1st of the month, at 12:01 a.m. on the 2nd of the month, you're late, regardless of whether you have a grace period.
Avoid lumping together your gas, electric, water and cable TV bills as “total utilities.” It’s harder to assess your usage that way. For example, for each of the utility companies to which you make a monthly payment, use your personal finance software to track your payments separately. Consider your usage, too, because usage determines how much or how little you are spending. Given the fluctuations that occur because of energy costs and seasonal effects, you could be paying $50 a month for gas service during the spring and summer months, but $250 a month during the coldest months of the year. In addition to tracking usage and payments, contact your utility companies and ask if they offer programs such as bill averaging. Bill averaging is a program that helps customers maintain consistent bills to track their spending year-round. A bill-averaging plan enables you to pay the same amount every month so you don't have drastic ups and downs that can affect your budget.
Look at your receipts after every grocery-shopping excursion, and avoid the habit of stopping to pick up something every day on your way home from work. Consistent shopping for similar quantities and types of food will eventually give you an idea of how much you spend on average for groceries. Also, include meals for you and your family that you don't prepare at home, such as take-out food and home delivery, when assessing your food budget.
Credit card bills, car payments and student loans are called "consumer debt." It's the debt you want to watch closely, because interest rates can rise without you even realizing it and will affect your ability to quickly pay down your debt. Corprew and Pearson agree that staying on top of your consumer debt is essential to maintaining a good credit rating.
Ideally, you should have a retirement savings account and a personal savings account -- that's in addition to the emergency fund savings account that you only tap into in the event of a catastrophe. Your personal savings account might be money that you put away for short-term goals or long-term goals, such as a down payment or a kitchen remodeling project. Monitor your savings account statements carefully every month, and if you think your bank can offer a better interest rate for other savings vehicles, discuss your options with your banker.
Watching your employer-sponsored retirement savings account grow can be fun, especially when you work for an employer who matches a percentage of your contributions. The "free money" you receive from your employer contribution adds up. Monitor your retirement savings account bi-weekly or every time you get a paycheck.
Every trip to the barber, the dry cleaner, the shoe shine man and the manicurist should be considered as a personal expense. If you want to simplify things, and if you have just yourself to account for, you can include clothing purchases in this category as well. In addition, personal care items and hygiene products are purchases you should track and categorize as "personal expenses" when you monitor your household budget.
By tracking your expenses through your personal finance software, you can get a clear picture on whether all or most of your money is going toward things that you really need or to the things you want. Corprew is a fan of "needs vs. wants" instead of the conventional approach to describing spending habits -- "necessary vs. unnecessary." Every month, look at your household budget tracking to determine whether you are on target. Allocate any money left over to your emergency fund or, or pay down your consumer debt faster. Pay attention to overages every month, because you don't want to reallocate portions of your income by setting new bank limits and deductions from your paycheck, only to have the amount change the next month. Track your household budget consistently for several months until you make significant changes to your spending.