Introduction To Budgeting
Hey guys!
I’m here today to talk all about budgeting, how I budgeted during my debt freedom journey, and how you can create your own budget today without any stress or tears. If you have tried to create a budget before and said to yourself “this is too hard” or “this isn’t for me” please just give it one more try. I promise after reading this blog post today (and future ones to come) you will succeed!
First, we have to change our thoughts around the word budget. Say it out loud, “I have a budget”. If you cringed when you said it, start to do the hard work right now. Ask yourself what about hearing yourself say you are on a budget or you have a budget makes you turn your nose up. Having a budget simply means that you tell your money where to go. That’s it. It doesn’t mean you don’t have money, or that you are struggling, but that you refuse to work hard and not know how your money is being spent.
I have been budgeting the same for as long as I can remember. Old fashioned pen and paper. I use to write my budget in the notes section of my paper planner, but now I write it out in my iPad. I use the Good Notes 5 app and Apple Pencil on the iPad Pro to physically write out my budget for each month. I get satisfaction from crossing things off, so I plan to continue budgeting this way. It has worked well for me and I really believe in the old saying, “If it ain’t broke don’t fix it”. Many people use budgeting apps, and if this works well for you that’s great, but they are just not my thing.
“Where do I start?” This is the number one question I get asked when people come to me for budget advice. This is also why I decided to make this blog post sooner than later so that everyone can get their foundation in place. I hope you are ready for the first step. It’s the most important!
Step 1: Breathe! You have to let go of guilt and frustration over possible money mistakes from the past. There is absolutely nothing you can do to change the past, but you can start today to change your financial future! Everyone has made money mistakes in the past. You have to let it go and figure out how to move on from it.
Step 2: Write out every single fixed expense you have for the month. These are expenses that do not change from month to month like your rent or mortgage, car payments, insurance, etc. These are the questions you should answer during this step for each expense.
What is the expense?
When is it due?
How do I pay it? (Auto draft or manual payment)
Step 3: Write out every variable expense. These expenses may change each month, but the questions still remain the same. Examples of variable expenses include electricity, water, gas, food (specifically groceries here), etc. Any expense that may change depending on your level of use should be included here. Looking back to previous bank statements will help you determine a range that you normally stay in for these categories. I prefer to pick the higher number of the range and make this the estimated budget amount for the expense.
Step 4: What did you forget. I am going to list out expenses that most people forget when showing me their starter budgets. Looking at previous statements on this step as well will help to make sure you do not leave anything out. Go ahead right now and make sure you didn't forget any of these!
Netflix
Hulu
Starz
Apple Music
iCloud storage (I don't care if its 2.99 for 200GB of storage, write it down)
Gym memberships
Beauty subscription boxes
Food delivery services
Phone application subscriptions
Automatic medication refills
The list could really go on and on here. Most of these expenses are small, but they really do add up and need to be included in your list!
Step 5: Write out your minimum debt payments. Do you have credit cards, student loans, or personal loans? It's important that you know at very least your minimum payments for these. We will get into interest rates another day when we make a plan of how we are going to pay them off, but for now we are keeping it simple and we just want to see what we absolutely have to pay each month.
Step 6: After you have determined all of these monthly expenses there are still a few things left to add. Some call it "fun money" and keep the category broad, others get specific and break down all extras that they have to pay for each month. For my ladies, this can include all things self care like nail appts, facials, hair appts, lashes, and brows. The men may only have haircuts in this category but may spend more in other areas. Date nights, eating out, and shopping are all things to include here. Nothing in this category should be anything that you NEED to survive each month, these are all wants only. I think it is VERY important to include this category in your budget. While starting out it is great for pointing out how much you are spending on "extras", and once we begin to eliminate things later you can decide what stays and what goes.
Step 7: Add up every expense and estimated expense. Take this number and subtract it from your monthly take home pay. Where do you stand. Is the number negative? If so you are spending more each month than you are bringing home. If this is the case we have to immediately begin to eliminate items from your budget. You will never be able to get ahead and break the paycheck to paycheck cycle if not. If you are in the negative you are also probably paying for things on credit and never being able to catch your credit card up … and we have to stop that! Being aware of this is the first step in making a change. On the other end, are you surprised with how much money you should have left over each month. Are you thinking "Where in the world does that money go?" If this is you, then you probably estimated one or more of your variable expenses incorrectly. (Or you have way too much money going towards your “extras”) Without even looking at your bank statement I already know that most of you have guessed an inaccurate number for your food budget. It's okay, we all do it, but its important that you review your statements to see what you actually do spend on food (groceries and eating out). Make any necessary changes here to get the best and most accurate possible budget.
*If there is anything that you pay for annually or biannually it is important to list those things at the bottom of your expenses with the due date and amount so there aren't any surprise expenses any months.*
Step 8: Anyone who is reading this that is not a beginner is already annoyed I'm sure. "Where is the saving category?" "What about investing for retirement?" Blah Blah Blah. These are VERY important, and I 100% believe they should be in everyone's budget, but if you don't know where your money goes in the first place how can you determine how much you can afford to save or invest each month. It does no good to move 500.00 into your savings account to have to take 450.00 back out because you need it for your monthly expenses. That's not how you successfully save and depending on your bank you may encounter fees for having too many transactions coming out of your savings account.
So at this point, you should have everything listed on your piece of paper that you have to pay for monthly. You have reviewed past bank statements and you have the most accurate picture of what your monthly expenses truly look like. You have officially kinda sorta started your budget. You know if you are spending more or less than you make per month and now we are ready to move to the next step in my budgeting world, where you decide your goals and make changes to your budget in order to reach these goals. Having your expenses listed out is really only half of a successful budget. You have to make the necessary adjustments and actually tell your money where to go each month in order to see any real financial changes. If you have made it this far, you might have a headache, and you might be hating me already ... and thats okay. I'm here to help so hang in there and we will get through this.
Kayla
