Ohhhh budgeting. When you hear this term, what thoughts come to mind? Did your parents ever say, “NO, we can’t afford that. It's not in the budget.” Or when you hear this term, do you think to yourself, “I don’t need to budget because I know where all my money goes. Besides I’m not bad with money.” Well, these are the thoughts that went through my head whenever I heard the term ‘Budgeting’.
Honestly, the term budgeting = buzz kill.
I especially didn’t want to discuss budgeting when I finally completed my Masters, my husband and I just got married, and we finally were making a decent income. Who in their right mind would want to tighten up the belt and live on a budget after they just got out of college. got married, and wants to live a little. However, our finances got to the point where we needed to do something because my student loan payments were starting to roll in on top of all of our other monthly expenses and it was EXTREMELY OVERWHELMING!
So, one night we sat down and started to do the unthinkable….we wrote out our 1st monthly BUDGET with our income and all of our monthly expenses. Was it stressful? YES. Did we screw it up by under budgeting in areas? HECK YES! But…..
NEWS FLASH!! It was a game changer.
Budgeting was our gateway tool that opened so many doors in our financial journey.
So do you want to know how to budget like a champion? Let’s dive in!
1. Determine your monthly income
Um ya, this seems like an easy one and if you are the type of person that watches the calendar and knows when payday is, you probably know what your take home pay is, but there are a lot of people that don’t know. So first thing’s first, find out what your monthly take home pay is and write it at the top of your budgeting sheet. (this can be pen and paper or on the computer).
2. Determine total monthly expenses
Now that you have your income at the top of the page, you need to start looking into what your monthly expenses are. In today’s world, you can start by signing into your online bank accounts, look at last month’s transactions, and see what bills/expenses were deducted from your checking account. From there, start estimating what your monthly expenses will be which may include:
Utility bills (electric, water, trash, cable),
food (restaurants/groceries),
debt payments (car, credit cards, student loans),
and any other miscellaneous expenses for that month (birthday celebrations, clothing, medicine, etc).
When you write it out, be specific. Don’t just group utility bills and say $300. Break it down and write out what each bill will amount to.
3. Income = outgo
So you have your monthly take home pay at the top of the page, and you’ve determined all of your monthly expenses within that month. Now, take your income and subtract the total monthly expenses within your budget. What does it equal?
Positive number: If your number is positive, GOOD JOB! That means you have money left over from all of your expenses. However, you now need to go back into your budget and figure out what to put this extra money towards. If you are trying to get out of debt, put the extra money towards a specific debt to pay it off faster. Or if you're saving for something specific, put this extra money in a savings account specific for that item. Random expenses coming up like car maintenance, gifts, etc. are other good items to put your money towards. Just make sure your income = outgo.
Negative number: If your number is negative, that's ok. It just means you need to go back into the budget and cutting back on a few categories. For example, if you budgeted $100 on restaurants, $50 on a new pair of shoes, and your budget is short $50, then you may need cut back on the restaurant and treat your family to fast food OR delay on buying that new pair of shoes. However, if you have nothing to cut back on in your budget and all your expenses are necessities, then you may have an income problem. In this case look into working overtime at your job or picking up some side jobs to make due. Remember, if you are budgeting and sticking to it each month, working a second job will only be a temporary until we get your payments down.
EXTRA: Want to squeeze MORE MONEY out of the budget? Read this awesome resource called "5 Secret Tricks to Squeeze Extra Money Out of your Budget".
4. Sign at the bottom!!
Now that you’ve done your 1st budget, treat it like a contract. If you are married, you and your spouse need to agree on the written budget and stick to it! If you are single, then its a little harder as you need to hold yourself accountable. You can find a friend or family member to help keep you accountable as long as they align with your goals. If they know you are trying to get out of debt, they should respect that and keep cheering you on from the sidelines!
Now that you know the step by step process to budget, are you ready to start?
If you've already started, but are struggling to keep up with budgeting, check out Don't Fall Off The Budgeting Bandwagon!- 5 tips that keep you budgeting consistently.
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