Frugal Intuition

For those of you just tuning in to this portion of our program, please review Part 1 of our series on writing a better budget.  It’s all about doing your homework and analyzing your current spending patterns.  You have to know where you’re spending to figure out where you have to spend and where you can cut back.

Have you done your homework?  Good.  Now I want you to sit down with that month’s worth of bills, your ledger detailing where you spent every penny, a calculator, and a good notepad and pen.

Now I want you to take those bills and make two piles.  The first pile is absolutely necessary things.  This includes things like mortgage/rent (if you’re a renter, you probably don’t have a bill, but write out your monthly rent on a slip of paper and add it to the pile), utilities, car insurance (this may or may not be a monthly bill–if it’s quarterly or every six months, don’t forget to add it), health insurance (if it isn’t already deducted from your paycheck), and monthly statements for any other loans such as auto loans or student loans.  What’s left should be credit card bills and any other form of unsecured debt (that is debt that isn’t tied to an asset like your car–which if absolutely necessary they could repossess or you could sell to help satisfy the debt).  Now add up your monthly expenses in the absolutely necessary pile (for utilities, it might be beneficial to have several months’ worth of bills to add and average to determine an appropriate value).  Whatever your total is in this column, this is how much you have to spend, minimum.  Now take your monthly income and deduct that pile one total.  The remainder is what’s going to have to be split between your remaining debts, savings, and discretionary purchases (that is, stuff you choose to spend money on, not stuff you have to have).

Tomorrow I’m going to talk about how you’re going to decide how much goes where.  Please stay tuned.

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