When it comes to budgeting, sometimes we make it harder than it has to be.
Here’s the thing, a budget will not only tell your money where to go but help you stay on track, so you don’t overspend. While it is good practice to track your spending anyway, a budget will give you the financial backbone you need to make progress toward your financial goals.
There is a HUGE difference between just tracking your spending (after it is done) versus telling your money where you want it to go (before it is spent).
78% of U.S. workers are living paycheck to paycheck, and only 41% of Americans use a budget! By feeding your family, filling up your car’s tank, and paying your bills, it can be difficult just to make ends meet. If you are spending more money than you are making, you could put your family in big financial trouble. However, the reality is that most people don’t know they are overspending until it is too late!
I spoke about this topic on my Savings Segment on Fox. Watch the Replay here:
Remember that even once you have a budget, it shouldn’t be carved in stone.
As each month unfolds, your financial goals could change too, and therefore your budget will change as well.
Your budget should always be used as a guideline to help you determine where and how much money to spend, but it’s up to you to stick to it!
If you are struggling with creating a budget that works for you, it’s probably because you haven’t found the instructions that worked well for you.
I’ve put together step by step instructions to how you not only how to put together a budget the right way, but how to make it work for you!
Grab a seat, and get yourself something to take notes with because we’re diving in!
Also, download my FREE Budget Worksheets to follow as we go along.
Make It A Game
If you want to win at budgeting, you’ve got to change your mindset and think of it as playing the Price is Right game each and every month.
Look over your bank statements (or have them automatically connected to Mint) to see if you can “beat your budget” for the next month to “win” and lower any expenses (or make more money) to have more to put towards savings or debt, or even, maybe a fun reward?
By changing your mindset about how you feel about your budget, you’ll automatically start to pay more attention to your spending as the month progresses which will help you to spend less (it’s like magic… you pay a little more attention and the situation gets better! Yay!).
Figure Out Your Monthly Income
Let’s start with the easiest number, your take-home pay. Most of us know how much we receive from our job each pay period. Write that number down in the Income Box on your budgeting worksheet.
If you get consistent paychecks, this might be the easy part, but if you have irregular income, then this might be a little more challenging.
If you are working with an irregular income, this could mean hourly, self-employed, or something else then you should write down the lowest paycheck you’ve ever received.
An example would be if you work as a contractor and your lowest paycheck was $1,000, but you make $1,500 on a regular basis, you need to write down $1,000 so that you cushion your budget and protect your spending from the low months.
Make A List Of Your Bills And Expenses
This is where I don’t want to lose you. Looking at your expenses is NOT SCARY.
You think right now that it is, because we are always afraid of the unknown.
But trust me, it is better to know what is going on, than have it hanging over your shoulders each month.
The best place to start is with what you know.
Now I realize there are loads of digital apps out there promising to identify these things for you… and I use excel to track my expenses. But I ALWAYS start by using a good ole fashioned pencil and paper to write it all out first.
Even if you just print out your bank or credit card statements to see on paper what you are spending your money on, that will work.
Grab a sheet of paper and make a list of all the bills and regular expenses you can think of. Don’t worry about assigning a specific number to items such as groceries or gas just yet. If you do know how much your bill is going to be, go ahead and write it down.
This will be your starting point for your budget so that you know where you are spending your money.
It doesn’t matter how much, just yet. We just want to know where we are spending (this is the category) and then you’ll figure out how much in a little bit.
Here are some of my categories to get you started:
• Pet Food
• Car Insurance
• Cell Phone
Label Each Item Critical Or Extra
Here’s where you can see how easy budgeting can be: I use only 2 categories to track my expenses to make it super easy to keep up with each month… items are either Critical Bills or Extra Bills.
Critical Bills are the ones that if you don’t pay them, you’ll be in big trouble, such as the Mortgage, Electric, Car Payment, Gas etc.
Then Extra Bills are the things that when push-came-to-shove, you could do honestly do without, and while it would be aggravating, you wouldn’t get into any trouble with anyone else. These are things like clothing, Netflix, and restaurants.
When I go to review my expenses for the next month, the ones I pay close attention to are the “Extras” because those are the ones that I have more control over changing.
Set A Grocery Budget
Since groceries are a necessity, you need to determine how much to spend each month on food.
If you have never set a grocery budget, I encourage you to start high and reduce it gradually over time. It is unrealistic to expect to go from four hundred dollars a week to one hundred dollars a week.
If you aren’t sure what number to choose, look at your spending from last month to help you determine what your grocery budget should be.
If you need help with reducing your grocery budget, sign up for my Free Online Video Class.
Decide How Much You Want To Spend
Next, look at each line on your budget sheet (or next to each category you made in the last step).
Before you start budgeting for shoe shopping or anything frivolous, you need to make sure your important bills are paid and that you have adequate money for food, housing and gas.
Essentially, you are budgeting for your necessities first! Then start filling in your other categories.
While Netflix and eating out is really fun, if you don’t have enough money for your other categories first, then you may have to live without these luxuries for a little while.
Where most people fail is because they forget about the annual or quarterly renewals. If you have Amazon Prime, that costs $99 annually, don’t let that be a surprise expense, budget for it! Take $99 and divide by 12 and put $8.25 in a separate checking account each month so you won’t be surprised when that bill comes up to be paid.
Create Surprise Funds
Just like we thought about with the annual payment for our Amazon Prime Membership, we need to think about any other annual memberships or dues that will need to be paid.
Here are some of the ones I pay each year and don’t like that surprise:
• Homeowners Association Fees
• Car Registration (we renew every two years)
• Car Insurance (if you don’t pay monthly)
• Barnes & Noble Annual Membership
• Magazine Subscriptions would also apply for the rest of the world who doesn’t realize annual Magazine Subscriptions should be FREE
The goal is to put a little bit of money away each month so that you are building up that expense and be prepared to pay it, instead of being forced to use a credit card to pay the bill when it pops up unexpectedly.
The Most Important Category: Fun!
This is where the magic happens. Remember the first suggestion I had to make it a game to beat your budget? Well if you can combine the process of using Cash Envelopes to pay for certain spending categories AND making it a game to beat your budget, you’ll be golden!
By deciding which categories you can use cash to pay, you will immediately start to spend less on those “extra” categories.
My family uses cash envelopes for Groceries, Restaurants, Starbucks (yes, they will reload your App Card with cash) and the most important category, FUN!
Here’s the thing, you ARE going to spend fun money. This is life, we have to live it! And if you do not budget for a little bit of fun money each month, then I promise, you will blow your budget every month (or your spouse will).
Look For Ways To Reduce
Now that you have determined how much you spend in each category, it’s time to go through and see if there are any areas you can potentially reduce.
Raising your deductible could help you save money on car insurance, canceling cable and switching to a subscription service could still allow you to watch your favorite shows for less.
Right now, I want you to think more about finding ways to make the things you already spend on, cheaper, not that you have to cut them all out. Depriving yourself is the best way to ruin your budget. You might last a few weeks… but eventually you’ll be miserable. Instead, figure out less expensive alternatives that still allow you to have a similar outcome.
If your total income is less than the total of your bills and expenses, you are going to have to either make more money or figure out which expenses you can reduce to spend less each month.
Your total income should always be more than your budget categories combined.
Whether you are looking to pay off debt, stop overspending, or just making a plan for your finances this year, creating a budget is an excellent first step. Telling your money where to go, instead of seeing where it went is taking a proactive approach to handling your finances.
YOUR TURN: Comment below with any questions you have about creating a budget!
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