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Why you need an emergency budget

Money experts have long recommended emergency funds, a money buffer to allow for the unexpected to happen, as one of the most important keys to a healthy money life. This money practice is important, but you also need an emergency budget, a plan to go along with your savings to be best prepared when a crisis strikes.

What happens to your hard-earned savings when an emergency arises and you need to dip into those funds? How do you know how long your money will last? What should you spend it on and what should you stop spending on?

In the middle of a crisis, no one is the best at managing their money. We spend emotionally. We panic. We don’t have the stability and guidelines that our budgets normally provide us.

The Emergency Budget

– your new favorite tool for peace of mind –

Building one is simple and does something that can’t be bought.  It lets you know exactly how much money you need to live off in an emergency situation.

Our regular monthly budgets account for a lot of things: paying bills, putting money in savings, debt repayment (for some), sinking funds, eating out, etc. In an emergency, many of those things won’t have a place in your budget anymore.

By creating an emergency budget NOW, you’ll know the amount of money you really need to survive the month with a roof over your head, clothes on your back and food in your belly.

saving money for emergency

Creating An Emergency Budget

1. Make a copy of your regular monthly budget.

Go through it line by line and cut anything that isn’t absolutely necessary to survival. Rent, electricity, food, car payments, insurance and gas all get to stay. Savings, restaurants, entertainment and “fun” money should all go. Be ruthless.  Read how to make a budget.

2. Add in lines for emergency expenses

Include things that could come up in an emergency situation. If your job covers your family’s medical insurance, COBRA could be a necessary added expense in the case of a job loss. If the potential emergency issue is medical, an increased child care budget may be a need.

3. Total your budget

Fully total your budget out and save it as “My emergency budget.” Put it somewhere safe and update it annually or as your financial situation changes.


You should now have an approximate number of how much money you need for one month. This “bare bones” budget can be used to see how much money you want to save for your fully funded emergency fund or to see how many months your current savings will last.

That number will also give you an idea of how little you need to be bringing in to survive. It is likely much less than your current income and will give you some peace of mind knowing that number when facing a potentially long-term emergency situation.

Doing this now allows hard decisions to be made with a clear head, versus later when you’re in crisis mode.  Armed with an emergency fund and an emergency budget, you will be much better equipped to weather any financial storm.

Your Turn!

  • Do you have an emergency budget in place?
  • Have you ever had an emergency impact your budget?

Save

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Budgeting Mistakes to Avoid

Whether you’re new to budgeting or have been budgeting for a while, there always seems to be expenses that get forgotten or overlooked. I know I’m guilty of overlooking all of the five most commonly forgotten expenses at one point or another. Unfortunately I don’t realize it until the expense comes up and I feel the pinch on our monthly cash flow.

In order to avoid the pinch, it’s a good idea to check your budget and make sure that you haven’t overlooked the most common budget expenses that get forgotten. You don’t want these sneaky budget busters ruining your month.

Special Occasion Gifts:

When looking at next month’s budget you do not want to forget any special occasions (think Halloween) or gifts that you might need to budget for. Open up your social calendar and see if you have any birthdays coming up or anniversaries that are being celebrated. Don’t make the same mistake I seem to do in October, and forget to budget a dinner out for our anniversary, and then have to make cuts elsewhere in the budget to accommodate for the “unexpected” expense.

Car Maintenance:

This is one of those categories that my husband and I overlooked early on in the budgeting process, but one that is important, especially when it’s time for any regular car maintenance. Even if you just set aside a small amount every month in an envelope or sinking fund and let it build, when you have to do an oil change or you have to replace your tires, you’ll have the money ready to go.

House Maintenance:

You also want to make sure that you’re setting aside a little bit of money each month for home maintenance. Even though you may not need this money each month, home maintenance is ongoing. There are always items around your home that will need to eventually be replaced or upgraded. Setting aside some money each month ensures that any foreseeable home repairs don’t require you to dip into your emergency savings or go into debt to cover the costs.

Quarterly or Annual Bills:

You also don’t want to forget those bills that don’t come in every month. For us, our electric bill comes in every other month and we pay our water bill quarterly. You want to familiarize yourself with the bill schedule so that you know which months you need to budget for them. Other quarterly or annual expenses might also include your insurance, licence plate renewal, or any yearly membership renewal fees.

Setting Aside Money for Taxes:

For those that are self employed or generating a side income where income tax is not deducted, you want to make sure that you’re setting aside a certain percentage of that money to keep the IRS happy come tax time. In order to know how much to set aside, you’ll need to determine your marginal tax bracket rate. By setting this money aside and being prepared, you’ll avoid the scramble with the tax bill comes in.

Your Turn!

  • What are some expenses that have busted your budget in the past?

Checking in With Your Budget

When we first started budgeting many years ago, the biggest mistake we made was that we never took the time to check in with our budget. I was under the false assumption that once the budget was written everything would just magically fall into place. This was certainly not the case.

Our financial picture only started to turn around when we not only made our monthly budget, but more importantly, began regularly checking in to make sure we were sticking to the budget. Let’s look at some of the ways you can manage your budget on a daily, weekly, and monthly basis.

Budget Check In

Daily Budget Check Ins:

If you love your smartphone, you’re about to love it even more when it comes to sticking with your budget. With many apps available, you will be able to establish and manage your budget on a daily basis while on the go.

One of my personal favorite apps is Mint. It’s user friendly and you can link up your bank accounts free of charge, allowing you to track your spending in the various categories of your budget which you can also create using this app.

Everydollar and You Need A Budget are two other budgeting apps available to use. For a yearly fee you can link these apps to your banking information. The one advantage of these apps is that you can have two people access the same budget which is great for both you and your spouse to stay in the know.

My one complaint with the budgeting apps is that the purchases made aren’t always categorized correctly so you do have to go in and edit as necessary.

budget pen calculator

Weekly Check Ins:

Since I’m a paper and pencil girl at heart, this is my go to. Every Friday I’ll sit down with my online bank statements from that week, receipts, and my budget and start entering in what I’ve spent and add it to the previous week’s spending. This weekly check in allows me to see where we are in each of the budget categories and how much room is left.

 

Monthly Consolidation:

This is the most important step when checking in with your budget. At the very least you want to make sure you consolidate your budget at the end of every month before the next month begins.

When consolidating my monthly budget, I’ll add up the total amount of income and subtract all expenses. At this point I can ensure that we didn’t overspend, and that with any luck, more money came in then went out. Any money left over we then put toward our debts until all of our debt was paid off.

stay on budget

Once you start paying attention to your budget and track your spending, you’ll really feel as if you got a raise. Paying attention will cause you to spend within your means, if not below your means, freeing up a lot of the money that would have slipped through your fingers to now put towards a more important financial goal.

 

Your Turn!

  • How often do you check in with your budget?

How to Make a Budget

If you’re looking to get control of your finances the first thing we need to do is make a budget.budget

If that word makes you squirm and you assume that a budget means not being able to have fun anymore, please know that I felt the same way too. I can assure you though, after 3 years of making a new budget for each and every month, I’ve found that living on a budget has not been restrictive, it has been freeing.

It gave us permission to spend what we could afford which means there is no more guilt coming home from a shopping trip because the purchases are planned and budgeted for.

 

Wait…Did you Say Monthly Budget??

You did read that right. Yes, my husband and I make a new budget for each and every month before the month begins and here’s why you should consider it too:

  1. Some months we have 4 paychecks and other months we have 5. We want to make the most of our income each and every month, so by setting up a monthly budget we can be sure to make the most from that “extra” paycheck
  2. You may not have the same expenses every month. Although many of your fixed expenses will occur every month, other bills might not be due every month. My water bill comes in the mail every 3 months and thankfully I don’t need to plan a birthday party for my children every month.

computer budget

How to Make a Budget 

  1. Start with your total income: At the top of your paper, you will write down all expected income for the coming month.
  2. Subtract your fixed expenses: The first group of expenses I take away are the fixed expenses that pertain to the four walls, the expenses that allow me to continue living where I live and get back and forth to work. These include Mortgage/Rent, Utilities, Transportation (loan payment if applicable and fuel), Groceries, Minimum Debt Payments, Clothing.
  3. Subtract your variable expenses: These are the expenses that can change from month to month or are considered the nice to haves. Think Magazine/Newspaper Subscriptions, Personal spending money, Dining out, or Entertainment.
  4. Find out what’s left: This is the moment of truth, it’s time to subtract your fixed and variable expenses from your total income. If you have money left over, this is the money that you can use to put towards paying down debt or set aside for long-term savings.If you have a negative balance, it’s time to look at ways to cut your spending (link to future blog) or increase your income (link to future blog).

balance income and expenses

Bringing it all together:

Now admittedly, I’m a pen and paper type of budgeter. You may feel more inclined to create a spreadsheet. Regardless of how you prefer to budget, the important thing is that you are taking control of your finances and telling your money where to go instead of wondering where it went.

If you are a paper and pencil type, this is my all-time favorite template to use. If you think a spreadsheet might be more your style, you can watch my husband and I give you a quick tutorial on how to set up a basic budget using Excel.

 

Your Turn!

  • Are you a paper and pencil type or a spreadsheet type?

3 Tips To Save Big On Your Tiny House Build

Understanding how a home comes together is important  when it comes to saving time and money, but really knowing how it all comes together means won’t just save you a few bucks, but thousands.  Here are 3 ways I save major cash during my build.

1. Buying materials in larger chunks

If you know how it all goes together, you can plan ahead in your material purchases.  Most big box stores will actually give sizeable discounts.  For me, I was able to save 15% on everything just because I knew how my house was going to go together.  That meant I saved $4,500!

2. Knowing how design choices impact your build

When I totaled up my total house weight, I realized that if I could shave off 100 lbs it would allow me to get a smaller trailer that was $997 cheaper.  I decided to go with a fiberglass shower pan instead of tile and save almost $1,000!

3. Design for efficient material usage

When you build a tiny house things are best done in 4 or 8 foot spans.  This is because most materials come in these dimensions.  Plywood comes in 4 x 8 foot sheets, walls are framed at 16 inch intervals, 3 x 16 = 48 (or 4 feet), etc etc.  If you work with these dimensions in mind, you can save time with less cuts and money with better material management.

 

Here’s the point: A greater understanding of building saves thousands of dollars. 

how-to-build-softcoverThat understanding is exactly why I wrote my new book: How To Build A Tiny House.  I designed this book to give you step by step instructions on how to build your own tiny house using any set of plans or your own design. I give you the background knowledge to expertly navigate the building process with confidence, avoid common mistakes, and answer your questions at every step.This guide is for the absolute beginner.

 

 

Want to learn about building, save thousands & build your dream home with confidence?

 

Learn more about How To Build A Tiny House
Click Here

 

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