How to make a budget...the most difference-making blog for you to read
Hey Y'all! I wanted to get back to my earlier financial theme with this post. Recently I spoke with some family members and friends who had asked some further questions about "our plan." In case you haven't been following, the majority of what we do follows Dave Ramsey's 7 Baby Steps. We're currently investing in retirement (step 4) and saving for a large down payment on our first house (step 3B, which isn't found in the steps, but he mentions in books/radio show) instead of step 6, paying off our house. The plan is meant to be in one step at a time until you get to steps 4, 5 and 6, which you would do simultaneously.
What family and friends have said recently:
One family member said, "You should share more about your budget. Not like what you spend, but how you put it together. I think people need help with that. I know each month we try to get on track with it, but we don't actually do a budget. We just look back at monthly card statements to see how much we spent."
Another friend said, "so what is that plan all about? I've seen that you guys do it and you pay down debt. I'm debt free - no car loan or school loans, but what else is the plan about?"
A third friend shared that their family used to be on the "Dave plan" but they've gone away from it and have some independent spending and checking accounts. He spends what he wants and she spends what she wants.
These examples are from a young married couple, a single person and middle-age married couple clearly show that we are all at different stages with what we're trying to do with our money.
Note - when I say "I," it refers to when I was running my own budget before we got married. When I say "we" it refers to how Megan and I operate currently.
No matter what stage people are at with their money, my biggest recommendation is to have an idea of what their financial goals are. The reason to have these goals is to know what you want to do next. If you don't have a reason, it is hard to desire having a plan for your finances and your future. Very rarely does not having a plan work - like for anything. Treat your finances like a recipe - if you don't have a plan, it isn't going to taste so good. Often times these goals are - paying off debt, getting a new car, going on vacation, taking care of your child(ren), saving for a house, etc. Next, you will want to determine how your monthly budget is broken down. Many individuals and couples don't really have a budget, just try to spend less than they make, sometimes. I know I used to try to stash some bucks in the savings account, buy things I wanted, and hope to be in the black on a monthly basis. The most important thing that I've/we've done to see progress was to actually have a budget, start with an amount in all the categories we need to purchase items in, and limit ourselves when we meet those boundary values. Let's face it, no matter how much money you make, you could always buy new things that would cost more than you made, if you really wanted to. It's time to fight that urge and start to spend more wisely. Did somebody say "Shots, everybody!"
What do you, or you and your spouse, spend money on? When you know what you're currently spending money on, you can begin to have a better idea of how to allocate or reallocate your funds to make some of those goals create a reality.
Even if you are single, having an accountability partner (sibling/parent/close friend/mentor) that will hold you to the fire when you're not meeting your goals is incredibly important. I don't know if there is anyone that is strong enough to combat their inner self or left-shoulder-self that wants that new/expensive/nice (fill in the blank - for me this is almost always shoes). I've found that simply waiting a day or week makes me want that item less, and is much more effective than the impulse purchase in front of you. I'm just as guilty as the next person - my next pair of shoes will require a new rack to store them.
Megan's input before our shared budget: "When I first started budgeting I began tracking my spending and filtered categories or names on my online banking and couldn't believe how often I had charges of $4-8 at Starbucks. It really added up and that was only what I could track through plastic purchases, not even including my cash purchases. It ended up being like $150 a month that I was 'blowing' without even thinking about it. Removing this daily routine made a huge difference."
Late in the month, Megan and I sit down for only about 5-10 minutes now to do the upcoming month's budget. Because we've been doing this for a few months, we have a pretty good idea of what we will spend on the majority of categories. We start with our most important things - recurring bills (rent or mortgage, groceries, electricity). Then we review our goals - currently saving for a house so put our remaining money here. We then add in unique items to that month like holidays, birthdays, trips, etc., which get subtracted from our down payment category. This method makes us sacrifice some fun, to keep some more money in our down payment fund. Depending on the stage you're in, the sacrifices will change. Sacrifice sounds like a strong word, but sacrificing a 37th pair of shoes is a sacrifice I'm willing to make to move forward.
The EveryDollar budget app is great because it gives you a starting template with likely categories of spending and then even carries your previous month forward to build off of. It is easy to adjust, add and delete items in the next month, but doesn't make you start from scratch each month.
We sit down around the middle of the month to review our budget. This is a great time to realize/update how much we have spent in the grocery and restaurant categories to tighten or loosen for the second half of the month. It is incredibly important to do this together, because I really like going to Qdoba, and Megan likes to grab a quick lunch when she actually gets a break at work in summer, and we also like to grab dinner on the weekends. If we don't track this, or discuss it, it would be very easy to spend twice as much as we had allotted in our restaurant category. Food (restaurants and grocery stores) are some of the biggest budget eaters out there if you don't pay attention. I heard a statistic the other day that consumers spend like $2.58 per minute they're in a grocery store. What if you go there without a plan and spend 40 minutes there? Hello $103.20 on junk food, infomercial items, and wasted produce in 7 days.
I understand most people don't actually do a budget, and don't know what they spend on anything regularly. Things that would shock most 20-40 year olds would be how much they spend at bars, restaurants and on entertainment. While these are all fun things, there are ways to do them smarter. If not smarter, at least realize what this spending (on a regular basis) prevents you from doing elsewhere. I would love for you to try setting up a budget and trying it for at least one month. What is the worst thing that could happen? You realize how much you spend on something you didn't think you spent that much on? What if you noticed a few small adjustments you could make and had an extra $200-500 a month? That would be helpful! Come on, give it a shot!
The majority of people who do a budget for the first time (and stick to it) feel like they have gotten a raise in their income. Quick Tips:
Some cheap hobbies for us this week with photos in order:
What family and friends have said recently:
One family member said, "You should share more about your budget. Not like what you spend, but how you put it together. I think people need help with that. I know each month we try to get on track with it, but we don't actually do a budget. We just look back at monthly card statements to see how much we spent."
Another friend said, "so what is that plan all about? I've seen that you guys do it and you pay down debt. I'm debt free - no car loan or school loans, but what else is the plan about?"
A third friend shared that their family used to be on the "Dave plan" but they've gone away from it and have some independent spending and checking accounts. He spends what he wants and she spends what she wants.
These examples are from a young married couple, a single person and middle-age married couple clearly show that we are all at different stages with what we're trying to do with our money.
Note - when I say "I," it refers to when I was running my own budget before we got married. When I say "we" it refers to how Megan and I operate currently.
No matter what stage people are at with their money, my biggest recommendation is to have an idea of what their financial goals are. The reason to have these goals is to know what you want to do next. If you don't have a reason, it is hard to desire having a plan for your finances and your future. Very rarely does not having a plan work - like for anything. Treat your finances like a recipe - if you don't have a plan, it isn't going to taste so good. Often times these goals are - paying off debt, getting a new car, going on vacation, taking care of your child(ren), saving for a house, etc. Next, you will want to determine how your monthly budget is broken down. Many individuals and couples don't really have a budget, just try to spend less than they make, sometimes. I know I used to try to stash some bucks in the savings account, buy things I wanted, and hope to be in the black on a monthly basis. The most important thing that I've/we've done to see progress was to actually have a budget, start with an amount in all the categories we need to purchase items in, and limit ourselves when we meet those boundary values. Let's face it, no matter how much money you make, you could always buy new things that would cost more than you made, if you really wanted to. It's time to fight that urge and start to spend more wisely. Did somebody say "Shots, everybody!"
What do you, or you and your spouse, spend money on? When you know what you're currently spending money on, you can begin to have a better idea of how to allocate or reallocate your funds to make some of those goals create a reality.
Even if you are single, having an accountability partner (sibling/parent/close friend/mentor) that will hold you to the fire when you're not meeting your goals is incredibly important. I don't know if there is anyone that is strong enough to combat their inner self or left-shoulder-self that wants that new/expensive/nice (fill in the blank - for me this is almost always shoes). I've found that simply waiting a day or week makes me want that item less, and is much more effective than the impulse purchase in front of you. I'm just as guilty as the next person - my next pair of shoes will require a new rack to store them.
Megan's input before our shared budget: "When I first started budgeting I began tracking my spending and filtered categories or names on my online banking and couldn't believe how often I had charges of $4-8 at Starbucks. It really added up and that was only what I could track through plastic purchases, not even including my cash purchases. It ended up being like $150 a month that I was 'blowing' without even thinking about it. Removing this daily routine made a huge difference."
Late in the month, Megan and I sit down for only about 5-10 minutes now to do the upcoming month's budget. Because we've been doing this for a few months, we have a pretty good idea of what we will spend on the majority of categories. We start with our most important things - recurring bills (rent or mortgage, groceries, electricity). Then we review our goals - currently saving for a house so put our remaining money here. We then add in unique items to that month like holidays, birthdays, trips, etc., which get subtracted from our down payment category. This method makes us sacrifice some fun, to keep some more money in our down payment fund. Depending on the stage you're in, the sacrifices will change. Sacrifice sounds like a strong word, but sacrificing a 37th pair of shoes is a sacrifice I'm willing to make to move forward.
The EveryDollar budget app is great because it gives you a starting template with likely categories of spending and then even carries your previous month forward to build off of. It is easy to adjust, add and delete items in the next month, but doesn't make you start from scratch each month.
We sit down around the middle of the month to review our budget. This is a great time to realize/update how much we have spent in the grocery and restaurant categories to tighten or loosen for the second half of the month. It is incredibly important to do this together, because I really like going to Qdoba, and Megan likes to grab a quick lunch when she actually gets a break at work in summer, and we also like to grab dinner on the weekends. If we don't track this, or discuss it, it would be very easy to spend twice as much as we had allotted in our restaurant category. Food (restaurants and grocery stores) are some of the biggest budget eaters out there if you don't pay attention. I heard a statistic the other day that consumers spend like $2.58 per minute they're in a grocery store. What if you go there without a plan and spend 40 minutes there? Hello $103.20 on junk food, infomercial items, and wasted produce in 7 days.
I understand most people don't actually do a budget, and don't know what they spend on anything regularly. Things that would shock most 20-40 year olds would be how much they spend at bars, restaurants and on entertainment. While these are all fun things, there are ways to do them smarter. If not smarter, at least realize what this spending (on a regular basis) prevents you from doing elsewhere. I would love for you to try setting up a budget and trying it for at least one month. What is the worst thing that could happen? You realize how much you spend on something you didn't think you spent that much on? What if you noticed a few small adjustments you could make and had an extra $200-500 a month? That would be helpful! Come on, give it a shot!
The majority of people who do a budget for the first time (and stick to it) feel like they have gotten a raise in their income. Quick Tips:
- Do the budget with your spouse, if not married do this separately
- You're not always right
- It only takes about 15 minutes to set up your first budget, 5 minutes mid-month, and 10 minutes every moth moving forward
- You need to track EVERYTHING
- It usually takes 3 months or 3 budget cycles to get good at it
- Your budgeting tool or method is probably not better than the EveryDollar app/website
- It WILL make a difference
Some cheap hobbies for us this week with photos in order:
- FaceTime hangout with friends from out of town
- Twinning date on Taco Thursday - $9.37 w/ tax & tip
- Mac N Cheese w/ leftover veggies before spoilage (extreme)
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