Welcome to week 2 of my budgeting 101 series. Last week I discussed setting your financial goals, so you really know what you want to do with your money. Today is all about getting your money in order, and creating and tracking budgets, tedious but essential. There is so much you could accomplish if you simply just got your finances in order. It’s called less stress, no debt, and an actual savings account!
HOW TO MAKE A BUDGET
You need to make a new budget every month, because expenses will vary with each month. Some months you will have birthdays or anniversaries, and some you will have car maintenance or vet bills. You will also need to adjust your budget depending on when you are paid. If you are paid twice a month versus once, then you will need to make sure you are considering that in your budget, such as earmarking some bills to be paid with the first paycheck and some with the second.
- Set up a spreadsheet through Excel if you know how to use it, or just whip out a good old fashioned pen, paper, and calculator.
- List all the income you will be earning for the month at the top of the page, and total it up.
- Next, list out all your expenses separately from your income. Bills, food, gas, rent, etc. Everything you will be spending money on in the coming month, make a category and budget for it. I like to separate my expenses into two categories: expenses that stay the same every month, and expenses that vary from month to month. The goal isn’t to have wiggle room, it’s to have a plan for every dollar.
- Now analyze it. Subtract your expenses from your income. Are you budgeting to spend more than you make? Then there might be some things you need to cut back on, like your food budget or spending money. Or do you have money left over that hasn’t been allocated to anything? Apply that money to pay extra onto your debt so you can pay it off quicker, or put it into a savings account for emergencies or maybe a vacation ;).
- Once you have created a current budget, make out a goal budget. Maybe you want to have a little more to spend on food, or you want to put more into savings. Whatever your ideal budget is, make it up, then see how much more you need to earn in order to accomplish it.
BUDGET TRACKING METHODS
it’s easy to create a budget, and then just leave it stuffed in the bottom of a drawer forgotten about with lonely paper clips and pennies. Making a budget is pointless if you don’t have some way to keep yourself accountable, so you must find a way to track what you are spending your money on. I have two recommendations when it comes to tracking: the envelope system or mint.com.
- The envelope system: I learned this golden nugget through Dave Ramsey, and it’s the best option in my opinion. Basically, it’s just dividing cash into different categorized envelopes. Create and label envelopes for each category in your budget, such as food, gas, spending, etc., then put the amount of cash you have budgeted for each category into each envelope. So, if you have budgeted $400 for groceries, then put $400 cash in your grocery envelope. You can store the envelopes in a cute little accordion file folder. Easy peasy. This wouldn’t include the bills you pay online, by check, or that are automatically withdrawn each month, just the expenses that vary from month to month (hence why I separate my expenses in my budget as mentioned above). It’s harder (mentally) to spend cash, than it is to just swipe your card. Plus, it’s soooo much easier to keep track of your spending, because you can see how much you have to spend in each category at all times, and once it’s gone it’s gone. Any change you get can just be thrown into a change jar for extra savings.
- Mint.com: This is the second best option in my opinion, and I still use it to create my budget every month. It connects to your bank account, and tracks all your expenses. You set up a budget through the website, and then it categorizes all the transactions made through your bank into each budgeted category. The downfall of this is that it doesn’t always recognize things, and know where to put them in your budget, so you will need to keep up with it, and make sure you put your transactions in the right place. It is pretty good about putting your bills in the right category though, and once you put something from a certain store into a category it will continue putting it there afterwards. But still, you have to stay on top of this, and make sure to check consistently that you are not going over budget in any categories.
Make sure you are properly forecasting how much things will cost. It’s very tempting for me to give myself less to spend on groceries every month in the hopes of putting more into savings, but what ends up happening is I go over budget because it was an unrealistic amount, and then feel extremely guilty.
You have to get everyone on board who is involved in the whole spending of the money thing, or else they aren’t going to care much about staying under budget if they are used to spending as they wish. Make sure they are involved in making out the budget, and understand and come to an agreement on it.
Reward yourself for a job well done when you stick with it. Have the reward picked out for the end of the month if you stay within budget. If you don’t, then try again next month. Cupcakes are always nice.
Lastly, forgive yourself. It’s not an easy thing to stick to a budget, even for this penny pincher. Don’t beat yourself up if you go over budget, and don’t wallow over every wasted dollar. What’s done is done, unless you still have the receipt…