The word “budget” might be foreign to you. It was to me. BUT, after a few months of doing one, it became harder to NOT do one. A budget gives you and your family permission to spend. It’s a plan for your money. Without a plan, you may be spending yourself into future financial ruin, but it may be hard to know for sure, since you aren’t budgeting. This can cause stress, and possibly money fights with your partner. Let me show you how to budget, so that you can SPEND without worry, fret or anxiety.
What’s a Budget?
In simple terms, a budget is a plan for your money. That’s it. How will you spend your money, once you receive it? It’s your spending or savings plan. Your budget is like your dinner reservation, street map, or summer vacation plans. You make it BEFORE you go. NOT after.
Most importantly, you set your budget (spending/savings plan) BEFORE you start spending.
Most people look at their bank account balance after they’ve already spent their money, to see how much money they’ve got left to spend before their next paycheck arrives. This is not the smart way to live your life. In fact, if you do it this way, you’ll likely never build wealth, and always be living paycheck to paycheck.
Why do a Budget?
If you don’t tell your money where to go, and what to do, it’ll leave. Simple as that. There’s always something more to buy. If there’s $100 left in your account, you’ll likely find a way to spend it. Not that you’ll remember later in the month what you spent it all on.
Be the Boss of Your Money
By planning where and how you’ll spend your money, BEFORE you get your paychecks, you’ll be in control of it. Furthermore, you’ll know exactly how you spent everything, because you’ll have a written (or saved) document that listed it all out before the month began.
The best part is, once you’ve set a budget, you can spend without guilt, worry or fear. You planned to pay for that Monday morning skinny vanilla latte, so you know it’s all gooooood.
How Often Do You Budget?
When my husband and I were first married we wrote down a list of our minimum payments and our take home pay, and called it a day. Never, ever repeating the process. Let me tell you, that approach was an epic fail. We ended up over-drafting our account repeatedly, going deep into debt, fighting, stressed and confused as to why we were so broke.
You build your budget: EVERY. SINGLE. MONTH. Yes, that’s right. Not once a quarter, once a year, or once ever. The latter being what I used to think.
Why monthly? The reason being, every month is unique. Utility bills fluctuate, holidays come and go, birthdays cycle around, you may get a bonus one month and not another. Things change from month to month, and so too should your budget. In order to be properly prepared financially for those changes you need to adjust your plan.
Some months you may be able to allocate more money to savings, or towards debt payoff, than others. You want your plans to be budgeted in advance, so that the money doesn’t just wander off and end up at Starbucks.
How to Budget: Creating a Simple Plan for Your Money That Works
Step 1. Top of the Page: Your expected household take home pay for the month.
How much money will you earn this month? If you are married, and you both earn an income, add those amounts together and place them at the top of the page. This is how much money you have to work with for the month.
If you have an income that varies, and you aren’t exactly sure how money you’ll make, just take your best educated guess. To be on the safe side, round down slightly.
Step 2. Middle of the Page: Your expected expenses (and savings) for the month.
This is where you list out your bills, as well as how much of your money you intend to save. If last month you owed $75 to your water company, and you put $100 in your Christmas savings account, write that down. Every single thing you plan to spend money on should go here. It’s the meat and potatoes of your budget. Here are a few examples of what would go here.
- Mortgage/Rent
- Food
- Light Bill
- Water Bill
- Car Payment
- Credit Cards
- Entertainment
- Savings
Remember, your dollar amounts should all be realistic. If you aren’t sure, look back to prior months and see how much you spent in each category. This may take a little time, but remember, next month will be easier because you’ve already recorded and tracked everything.
Step 3. Bottom of the Page: $0
There should be a ZERO at the bottom of your budget spreadsheet, or page. That means you’ve taken all your expected income (1) and subtracted all your expected expenses and savings (2) and are left with nothing (3). This is what’s called a zero based budget.
This doesn’t mean your account should be left empty. Be sure to leave a cushion in your account, of around $100 or so. Money you pretend isn’t there, but prevents your account from ever actually hitting rock bottom. Ain’t nobody wants that.
What if you have a negative number at the bottom of your page?
Now that you’ve taken the time to list everything out, in detail, you can clearly see WHERE all your money is going. This is the perfect time to see if there’s anything you can cancel, reduce or give up to help you reach one of your money goals.
If you find that you don’t have enough money to pay for everything on your list, you’re over budget, and you need to CUT something. Here are some extreme ways to cut costs.
Be Patient and Revise, Revise, Revise
After you create your budget, and the month begins, you may need to make some small revisions. Your first budget it bound to have some issues. Maybe you underestimated how much you’d need for groceries, and overestimated how much you’d spend on clothes. It’s okay. Give yourself some grace, and learn from your mistakes.
When my husband and I started budgeting monthly, it took us several months to get it right. At first, there were more than a few angry outbursts from one of us. It’s a trial and error process. Just don’t give up, and you’ll soon be budgeting pros.
