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Over the last few years, I’ve talked to many people that want to implement a budget into their lives, but don’t know where to begin. And making a budget is a daunting task, but not an impossible one. The most important thing you can do is start one.
I will caution you up front though that keeping this kind of budget is not easy, but it is necessary unless you have more money than you know what to do with; in which case, I would be happy to provide you my address for a little charity fund should you feel so inclined. But seriously, for the first four years of our marriage, we lived on one income. Raking in under 30,000 a year on a teacher’s salary was not easy and really hard, but never, ont once in that four years, could we not pay a bill or feel like we couldn’t enjoy life. We just dealt with our financial boundaries and learned to live within our means, and you know what? We were even able to save, every month.
You can make a budget, and you can stick to it. You can live well, and you can get out of debt.
Starting a budget takes a little time and a lot of honesty, so plan on taking an hour or two to do this with your spouse and make sure you are both on board. This whole budget thing doesn’t work when on eperson isn’t committed to the process.
#1: Decide who will be in charge of the budget. Please don’t say “both of us” because then responsibility can always be shifted to the other party – read here, fights. Decide who is the most control-freakish of the two of you, and that person gets to run the budget. Guess who won that prize in our family?
#2. Decide how you will be tracking your money. If you are into electronically tracking your expenses, there are so many great sites that make sticking to a budget pretty easy. My husband uses www.mint.com to do a double check of our expenses. Some other resources that might appeal to you can be found at the Good Financial Cents website. Many of these online budgeting tools can link to your bank account and put your purchases in categories so that you always know how much you spend each month in a pspecifc area, like food. Another option is the excel sheet. We tried this early on in our marriage when Ross was the budget manager. Im not sure if it was the Excel spreadsheet or because Ross (laid back, sweet Ross) was in charge, but this didn’t work for us. Dave Ramsey, creator of Financial Peace University, has an Excel spreadsheet budget that you might want to take a look at.
The last option, and what I do, is a hand-written budget. Writing down my budget each month and spending a few moments each morning with it really helps me focus on what needs to be done and where our money is being spent. Get your own official Dave Ramsey budget sheets or just create your own.
#3. As you write your budget, “spend” every penny. This means that every cent you receive each month needs to go in a category. Decide, realistically, how much you’d like to spend on various groups. Here’s the groupings I see. The picture is from the Financial Peace Workbook and dictates percentage of your income that you might consider helpful as you think about how to divide your money up.
- Student Loans
- Food (which for us includes hair products, prescriptions, basically anything that would be purchased at the grocery store)
- Car (includes oil changes, gas, and repair)
- Baby/Dog (miscellaneous fund for dog food, vet bills, and baby preparation)
- Utilities (gas and electric)
- Mortgage for house
- Property Taxes
- Clothing (for everyone)
- Gifts (birthdays, baby showers, weddings)
- Car Insurance
- Water Bill
- Cell Phone Bill
- “Came up” fund (for things that need to be magically funded without foresight)
Then compare what you bring in to what you would like to spend each month. If you spend more than you make, you are going to have to sacrifice on some things. And yes, sacrifice stinks, but so does owing money – choose your poison.
#4. This is the step that not everyone does, but I would HIGHLY recommend. Decide which categories you will use cash for, which bills you will pay electronically, and which groups will be hypothetical funds. Here is what I mean:
Cash categories – these are the groups that you will pay for with actual cash. This means that every month you will need to go to the bank and take out a large sum of money, divide it between your allotted funds, and vow to only use what is there. You will have to annoy the bank tellers when you ask for six fifties, 11 twenties, 14 tens, and three fives. You will have to look ahead in the month and decide not to blow your entire envelope of food money in two weeks. Yes, I said envelope. You will have to carry around an envelope that says FOOD on it and pull it out to physically give green paper to cashiers. It will be weird, but you will get over it. You will probably love it. Green is clean, people!
Electronic categories – they are groups that you can just pay with credit card / debit, electronic withdrawal, or check. You pay these categories each month and at a fixed amount. For example, our student loans are electronic funds. Every month on the 20th, our student loans magically escape from our bank account to the appropriate places. Technology is so nice sometimes.
Hypothetical categories – these are the groups that will get a designated amount of money on paper, but you won’t actually need to use each month. For example, our water bill is a hypothetical fund. We get our water bill every three months, and it costs about 160 dollars each time. So each month, I ‘spend’ 55 dollars for the water bill, but I only pay that bill four times a year. Make sense? My savings will look larger because of this, but it is not and don’t spend the extra!
#5 Actually use your budget. If you are not working with it, it won’t work for you. I spend anywhere from 30 seconds to 10 minutes each morning logging into our bank account and recording purchases into my budget, writing checks and mailing them, paying electronic bills, and tweaking my budget where necessary.
Lastly, there really are a lot of great benefits outside of being able to pay your bills. Once your family is on board with the budget, financial stress and fighting is almost nonexistent. You have created how you are going to spend your money together, so if strife comes up, you tweak, and peace is again restored. And finally, you need to think of this as an opportunity for creativity, not a death sentence. You can still have fun on a budget.
Once you start looking into what is offered in your community, you will find a treasure trove of free or very inexpensive activities. I am always on the lookout for local classes offered at my library, seasonal festivals offered near Cincinnati, local parks with trails, cheap movie deals (Tuesday nights at our local penny saver theatre – $1.75!), and free concerts.
After all your research if you find that you are still not finding as much as you would like, another tip is to start traditions that you do every week. This makes the cheap suddenly valuable. For example, we have Slurpie Sunday each week. We walk the two miles to Speedway, get frozen cokes, and think about how awesome it is that Megan doesn’t have to cook tonight. We have whittled many a Sunday evening away by getting dollar slurpies. So be creative – it takes a little more time, but I think it’s definitely worth it.
If you are interested in learning more about budgeting, I would highly suggest you attend a Financial Peace University class in your area or go to the library and check out Dave Ramsey’s books on creating financial peace (notice I said go to the library – it’s free. Start saving early). My budget steps are based off of my experience with Ramsey and what has worked for us, but his classes and material go much more in depth into the budgeting process and cover other topics like saving for retirement, making sound investments, and teaching your kids how to save and budget. His approach is humorous, but there’s no beating around the bush. My favorite Dave Ramsey quote is “Live like no one else, so later on you can live like no one else.” Think about it.
Featured image c/o http://www.tv411.org/finance/earning-spending/how-set-budget