Saturday, January 9, 2010

How to Budget Shop: Income,Outcome and All that jazz

This is part 4 of the Budget Shopping series. If you haven't already, please check out part 1- How to Budget Shop: The Rules, and part 2- How to Budget Shop: Investment Pieces, Basics and Classics and part 3- How to Budget Shop: Sales, Thrift stores and Shopping Your Closet.

How many times have you looked at your bank statement and loudly exclaimed "I've been robbed!" , only to realise minutes later that you actually made all those purchases and withdrawals and not some creepy computer hacker/highly skilled robber? I don't know about you, darling devotees, but I've only been living in a dorm for 4 months and this has already happened to me too many times to be comfortable with. Darling devotees, I can honestly say that I learnt the following lesson the hard way: In order to live on a budget, one must have a budget to live on. It is really asking too much of yourself to resist than $300 purse, if you don't monitor (or even know) how much money is coming in and going out of your account. Last semester I would tell myself that I technically knew how much money I can spend this month, and expected that I would be able to keep track of my expenses in my head. Clearly, that didn't work out and after much research, I have come up with this list of activities that should help one live on a budget:
  1. Set up a visible monthly budget: It can be on paper or on Excel, either way is fine as long as you actually have it written somewhere. The reason I love Excel is because you can update the figures easier, but having a little notebook where you record your income and expenses as well as your monthly plan is fine too. When creating your monthly plan, look at your total income (or the amount of money you have or will soon have for the month) and list all of the categories of expenses you will have to take care of over the course of the month e.g. rent, food, clothes (!) , school supplies, transportation, emergency, miscellaneous, etc. Allocate a certain amount of money to each category and try to stick to your budget as much as possible. As time progresses you'll be able to predict how much money you spend better.
  2. Monitor your income and expenses: Whenever you spend money, reflect that in the expense column of your budget according to its category. Do the same whenever you receive money. You don't even have to say what exactly you spent the money on, that's why we're using categories. By doing this you get a better idea of where all your money goes to every month and can therefore know where you need to cut back, if necessary. Evaluating and monitoring your budget also lets you know what options you have on how to use your money i.e. more shoes or more trips to the movies.

  3. Cost-per-wear: As I've mentioned before one of the major keys to budget shopping is calculating the cost-per-wear. All you really have to do is guesstimate how many times you will wear an item (e.g. 1 a week for a year= 52 times) and divide it by its price. The problem with this is that people sometimes overestimate the durabilitiy/quality of an item, which causes them to get a wrong cost-per-wear. A couple tips to help you better determine high quality items are:

-Check the seams of the clothes: If threads pull apart relatively easily or if buttons are hanging loose, it probably wasn't well sewn.

-Check the quality of the fabric: some fabrics just look cheap, others really are. Being able to tell the difference between the two is something you can only learn with experience.

- Weigh the trend factor: Will you even want to be seen wearing the item in a couple of months? If not, will it be good enough to resell or use for something else?

If you want more help on setting up a budget or organising your finances, check out Suze Orman, particularly her advice on Oprah.

(Photo from: toolmantim )

Love you all and Stay inspired,

P.S. So let me know what you think. Do you have a budget plan? Does it work for you? How do you determine quality of an item? Feel free to let me know in the comments below.

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