Budgeting…. the word that makes people cringe more than watching a love scene in a movie you’re watching with your parents. I get it. I don’t like people telling me what to do. So I certainly don’t want a piece of paper with some numbers on it to tell me what to do with my money. But what if you reframed it in your mind? Instead of your budget telling you what to do with your money, you are telling your budget what you want to do with your money? Sounds better that way right? If you think about it, you are actually much more in charge if you are deciding where you want your money to go and then sticking to that plan as opposed to just letting your money go wherever it goes without a plan.
But where to start can be overwhelming so here are 8ish steps to help you get it going.
1. Start with what you have coming in
If you have a consistent paycheck, this shouldn’t be too difficult. If you work on commission, or have some type of inconsistency in your pay month to month, pull out your bank statements and get a 6 month average of what you bring in so you know what an average month looks like for you. When you have a good month and go over, keep that overage in your account ready for a month when you go under so you’re not scrambling.
2. Get real with your numbers
I’m pretty sure there’s an appropriate Dr. Phil quote in here somewhere but seriously if you can’t get real about where you are, how can you get to where you want to be? Write out everything. What are your non negotiable monthly expenses (rent, utilities, insurance, etc.)? What are your monthly expenses that have room to cut (groceries, coffee shops, travel)? Get it all on paper so you know exactly where you’re at. No need to strategize on what you’re going to cut yet, just get it all down in 2 different categories so you can see what your fixed expenses are and your variable expenses. We’ll deal with making cuts soon.
If you haven’t been tracking these numbers up until this point the best way to do this is to pull up your bank statements from the last 6 months and get an average for each category for the last 6 months.
3. List all your debts
Like all of them. Medical bills, credit cards, student loans, family loans, everything. Make sure you know the balances owed plus the interest rates on each of them.
4. Get mad
You will never stick to a budget if you don’t see the value in it. One of the best things you can do is figure out what your minimum monthly payments on these debts are and then input that number into an investment calculator to see what that amount of money invested monthly would look like in 30 years, you would probably want to slap yourself. I know I did. So I got mad.
I ran the numbers using Dave Ramsey’s investment calculator for $100 a month between now (I’m 34) and retiring at 67. If I only put $100 a month (which I would venture most of us are paying more that $100 a month in monthly debt payments when you include all your debt) then I would have invested a total of $37,200 and would have $364,617. Basically I would have $327,417 of FREE MONEY! Are you mad yet? Why are we handing over our hard earned money to credit card companies and lenders when we could be handing that hard earned money over to build our own futures and the futures of our families?
5a. Plan your debt payoff
If you have debt (other than a mortgage) this is where you want to start planning your attack. Your main goal is to get this debt paid off as fast as possible. Use a debt payoff calculator to input your numbers and pick a date you want to have it all paid off. How much does the calculator tell you you need to put towards debt each month in order to meet your goal? At this point, don’t worry about your expenses and income when considering your goal date. We’ll focus on that in the next step.
5b. Plan your savings
If you don’t have any debt do a happy dance. No really, do it. There a lot of great people with way more knowledge and experience than I have that can tell you what to do with your money at this stage of the game. This is where you get to budget your money according to your priorities and future instead of paying off your past. Way to go you! This is an exciting place to be.
6. Make any adjustments to your income and expenses necessary.
Do you bring home $5000 a month but by the time you factor in your expenses plus the extra to pay off you debt by your goal date you need $7000 to month to make it happen? This doesn’t mean you change the payoff date, it means you change your expenses and/or income.
Have a come to Jesus with your expenses. For this season do you need to cut out restaurants? Your monthly trips to the nail salon? Your daily or even weekly Starbucks? Do you need to put off signing your kids up for activities or going on vacations?
And if you’ve cut all you can cut and you still need more to meet your goal it’s time to take a look at your income. How can you bring home more? When was the last time you asked for a raise? Asked for more hours? How about a second job? Or if you’re a stay at home mom can you find work on nights and weekends during this season to help pay down your debt faster? Maybe you have stuff to sell? Little stuff in your garage or a big old boat sitting on your side yard. It all adds up.
7. Get in on paper
By now you should know:
-how much you have coming in
-how much you have going out
-when your debt will be paid off
-what you’re cutting
-how you’re bringing in more money
Now it’s time to put it on paper. If you’re a pen and paper kind of person, simply writing out your income and subtracting out your expenses is a great way to do it. I like to keep a cushion of $100 just in case in my checking account but aside from that, every other dollar goes to expenses and anything left over goes to paying off debt. If you’re debt free, leave the $100 cushion and put every other dollar to what makes sense for your goals.
If your brain works better with an online format, this Kiplinger online budgeting form is fantastic!
8. Stick to it
How do you stick to it? You just do. I know that’s not the answer some of you want to hear. There may be times you mess up and take a step backwards. I’m not saying you do it perfectly all the time, but you stick to it because you’re determined to have your money work for you instead of against you. Keep the end goal in mind. And when you cross that finish line on your goal make sure you set a new one or you may find yourself slipping backwards.
Congratulations! You have officially set and implemented a successful budget! You are taking steps towards living a life that aligns 100% with your values and not what your bank account says. Pretty cool right? Go you!