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Just saying the word budget can increase some people’s blood pressure. Most of the time, budgeting gets a bad reputation. Budgeting (according to Google) is an estimate of income and expenditure for a set period of time. In layman’s terms, it is a plan for your money.
Instead of flying by the seat of your pants, you have to sit down and decide without any emotional drama what you want to spend your money on. You are prioritizing what’s important to you financially.
Here are some statistics on budgeting:
On average, each household has about $8,300 in credit card debt.
41% of Americans couldn’t self fund a $1,000 emergency.
The average student loan debt per college student is $32,731.
Here are the things we will cover:
- Why you need a budget
- Limiting beliefs around budgeting
- Different types of budgets
- How to budget
- Tools to use for your budget
- Success tips for budgeting
Why you need a budget
- See how much money you really have– most people are surprised by how much money they actually make and spend.
- Helps you save more money
- Helps you decide ahead of time without any drama in the moment about how you want to spend your money and prioritize your saving and expenses.
- Opens your eyes to your spending and helps you figure out YOU are in control of your financial destiny and not someone else.
- You need one- When you don’t have a budget, it’s like taking a trip to a new place without GPS. You are all over the place and have to keep turning back around. You end up going in circles.
Limiting beliefs around budgeting and how to reframe them
- Budgets are too strict. Budgets help me plan my money and set my future up for success.
- I will never be able to do this. I’m just new and learning takes time.
- My parents should have taught me this. There is no better time to learn than now.
- I can’t afford that. I’m choosing not to spend my money on that.
- I don’t make enough money. I am so glad I get to create money every week.
- I’m just not good with money. I’m learning how to manage my money.
- Budgets take up too much time. I love learning how to pay attention to my money.
Different types of budgeting
Allocating your money with two categories of spending:
Allocating your money with three categories of spending:
50% necessities (needs)
30% discretionary (wants)
20% savings and debt
Create categories for all of your spending and allocate the percentages per category for your budget.
How to budget
1. Figure out how much you make
Calculate your monthly income. If you are on an irregular income, take the average of the last six months.
2. Calculate your expenses
Gather up all of your bills and write them down onto a piece of paper. You need to know the name of the company, due date, and amount due. If you have some irregular expenses (like a power bill) calculate the average of the last 3 months.
Pull your last month’s bank statement and add up the expenses by category. (This doesn’t have to be perfect. You can even round the numbers. This is just a starting point.)
- Income (Salary, Bonuses, Alimony, Child Support, Side Gigs, Tips)
- Housing (House payment, repairs, property taxes, HOA fees, maintenance)
- Food (Groceries & restaurants)
- Utilities (Power, cable, internet, water, sewer, alarm systems, trash, telephone, gas)
- Household (cleaning supplies, toiletries, laundry supplies, paper supplies, pet, and child care)
- Insurance (house insurance, car insurance, life insurance, disability insurance, medical insurance, etc.)
- Transportation (car payment, gas, repairs, toll fees, tag, and license fees)
- Personal Care (Hair care, gym, personal care like Mani/Pedi, makeup, etc.)
- Giving (tithes, offering, charities, birthdays & other gifts, donations)
- Debt (student loans, credit cards, personal loans, lines of credit, family loans)
- Savings (emergency fund, sinking funds (vacation fund, Christmas fund, etc.), retirement, college fund)
- Entertainment (movies, vacations, electronics, museums, monthly subscriptions)
- Miscellaneous– any miscellaneous money you didn’t account for
How you break up your categories is up to you. I find it easier and way more simple to have fewer categories. These are just to give you an idea and help you figure out how many expenses you have.
Figure out how much you’re spending per category and if you want to change that number? Do you want to increase, decrease, or keep the number the same?
4. Create your rough draft budget in pencil
Create your rough draft budget by category for the month. Make sure it balances to zero. Income – expenses = $0. If not, you need to adjust something.
5. Finalize budget in a family budget meeting
Have a family budget meeting and finalize the budget. Look over it together and figure out if you and your spouse want or need to make any changes. When you’re complete, create a finalized budget.
Tools to use for your budget
Free printables– in our resource library
EveryDollar– budgeting app from Dave Ramsey that’s FREE. You can input your budget and track your expenses.
Success tips for budgeting
- Drop the perfectionism- Your budget will change as needed. There isn’t such a thing as a perfect budget.
- Use cash envelopes for categories where you typically overspend. Popular envelope categories are groceries, restaurants, clothing, medical, hair care.
- Create a new budget every single month
- Give yourself grace. This is new and takes time. You will always be updating and changing it.
- Use automatic debits to pay your bills to save you time on individually paying them.
- Automatically transfer money to savings before you spend any money so you don’t have to think about it.
- Track your expenses. Track all of your expenses in EveryDollar. Even if you went over budget. This will help you see which categories you are overspending or underspending on and why. You either need to decrease spending or increase the amount for that category.
- Evaluate your budget at the end of every month. What went right? What can you improve on? How much debt did you pay off? How much did you send to savings? What categories did you overspend or underspend on?
- Be realistic with your budget. If you are spending more than you want on going out to eat, only decrease the spending by 20%. You can’t go from spending $700 a month eating out to $150 a month in 30 days. That has disaster written all over it. Just be realistic and trust the process. It works. The key is to create a budget you can stick to so you can start getting used to following the plan.
Change takes time. It doesn’t happen in an instant. Be patient. Rome wasn’t built in a day.
“Change is a process, not an event.”- Cheryl James
Budgeting your money can change your life. Most of the fights married couples get into are about money. If you can take care of your money, it will be a domino and affect other parts of your life. You need to get on a budget. Don’t be a perfectionist. You will get better at budgeting and sticking to the plan the more you do it.
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