OK, so if the “B” word makes you want to groan, hear me out here.
What if I told you that a budget doesn’t have to be some restrictive spreadsheet that cramps your style and forbids you from having any fun?
What if I told you that a budget is actually all about helping you reclaim power and control of your dollars?
What’s a budget really? It’s a plan, a spending plan specifically.
Think about it. For any goal that you ever dreamed of … have any just miraculously come to fruition Cinderella-style?
I’m not a gambling girl, but I’d bet NOT. You need a plan.
Think of your budget as you calling the shots about your money for once. Instead of you getting paid and then wondering where the heck all of your money went, you can actually tell your money where to go. Dave Ramsey suggests a “zero-based budget” meaning that every dollar as a job, a place to go to, work to do for you – til you get to zero.
Think of your budget as your map. If you have certain financial goals, you can use your budget as a map to get you where you want to go.
And this doesn’t have to be hard. If you type in ‘budget’ in your app store, there are going to a million mobile apps to help you budget. I personally use Mint.com, and really like it.
But if budgeting is new to you, I recommend going old school with paper and pencil or a good ol’ Excel spreadsheet to get the most out of the process and start strengthening your financial muscles.
Budgets are blueprints and priorities.
Feel uncomfortable about your money? It might be because it’s been a while since you spent some time seeing what you really have, what you really owe. But once you put your financial house in order, you will feel much better because you will have the confidence of knowing exactly where you stand.
IT’S GAME TIME
Here are some steps to get started:
1. In one column, write down a list of all of your income each month. Things like your wages, any freelance or side hustle money, and rental income. Don’t forget about alimony, dividends, etc.
2. In the next column, list your expenses. Start with the bills that don’t change much each month. Things like mortgage, rent, car notes, phone bill, etc. Look through your stacks of mail and pull out the bills, check your email inbox for electronic statements you have on paperless settings, look at your credit card statements and bank statements to jog your memory of what you pay each month.
3. List each creditor or bill and the amount you pay each month. Consider what the minimum requirement is on these bills and note whether you pay the minimum or a little extra.
4. For things that you pay a few times a year like car insurance or HOA, look at what you pay annually and divide by 12 to come up with the monthly amount you should be saving each month so that these quarterly or biannual bills don’t drain your account.
5. Next, consider the expenses you have that you have more control over. Things like your gas, groceries, personal care money like haircuts, manicures, waxing, etc., Amazon spending, etc. Look at your bank statements and credit card statements to come up with an idea of what you spend on average and add it to your budget. That exercise in itself can be eye-opening.
6. Add up all of your income to get your Total Monthly Income. Now, do the same with your expenses to get your Total Monthly Expenses. Now subtract your Monthly Expenses from your Monthly Income to see what you have left at the end of the month.
How did you do?
SLAY THAT DEBT, STACK THAT PAPER
Do you have money left over at the end of the month? Congrats! Now you can tackle debt, work on your savings, and even invest to make your money work for YOU.
If you haven’t started saving yet, look at your budget and think about what you can realistically sock away each month. Then open a savings account and automate a transfer each payday. Automating makes saving so much easier because the money is gone before you even see it so you don’t miss it.
If your budget is in the red, then it’s time to call a Come to Jesus talk with yourself.
Where are you leaking money? Where can you cut your budget?
Even if for just a short period of time while you pay down debts to free up room in your budget. Can you meal prep and host potlucks at home with your friends instead of dining out?
Can you make coffee at home and take with you to work? Are you brown bagging your lunch? Can you color your roots at home or give yourself a pedi at home? Can you get a roommate? Can do free and cheap outings for dates?
What should your budget allocations look like? Well, if you have never budgeted before, I think the first step is to see where you are. Then you can make changes.
Depending on your income and bills, you may have more or less flexibility to make tweaks. But a popular breakdown recommended by NerdWallet is the 50/30/20 budget. In this spending plan, you spend half your after-tax income on necessities, about 30% on wants and 20% (or more if you can swing it) on savings and paying down debt.
What are necessities? Your rent or mortgage, utilities, insurance, food, etc.
Wants? Eating out with friends, buying gifts, shopping, etc.
For that last 20% your allocations may switch from month to month depending on your current situation. Do you have an emergency fund? Dave Ramsey suggests $1,000 as Baby Step #1 before tackling your greater debts. The rationale is – life happens and if you are already in debt, the last thing you want to do pile on more debt if ‘life’ happens and you have no savings to fall back on.
Along with giving yourself a cushion, we never want to leave money on the table. Does your employer offer some kind of 401K match? If they do, you want to be investing at least what the match is to be able to get the free money they are investing in you.
Once you have taken care of yourself, it’s time to slay some debt. But all debt is not equal. List your debts by interest rate and focus on the ones with the highest interest – usually credit cards, payday loans, etc. Some personal finance gurus suggest tackling the smallest debts first regardless of interest rate so you can get some traction and feel accomplished enough to keep going. If this works better for you, make it happen. The important thing is that you get rid of that debt as fast as possible.
RINSE & REPEAT
Here’s the thing about your budget. Just like life, your budget should be dynamic. Most of us have different financial needs each month, so our budget may look different each month. Work on your budget at the start of each month and tweak what you need.
Check in with yourself every few days so you can keep track of your progress. Look at your receipts and log into your accounts regularly. Set up bank and credit card text and/or email alerts to stay current on balances and activity. The more you spend time monitoring your money, the better chance you have of meeting your financial goals.
Do you budget regularly? Or is this new for you? Let me know in the comments.