When it comes to reputations, the “budget” isn’t exactly reppin’ strong. People cringe when they hear the word, they wrinkle their noses, change the topic, or throw out an insult—“I just don’t want to restrict my spending and then not have any fun”. I’m going to put this out there (and maybe once I do, people will despise me more than the misconceived purpose of the budget): A written budget does not automatically turn you into a loser. Shocking, but true…stay with me guys. Getting on a written budget does not guarantee that you will be skipping every concert on your bucket list, eating Ramen Noodles every night, getting shin splints because your running shoes are worthless, or never hitting Starbucks.
Having a written budget is kind of like having a list of presents you want to get all of your family for Christmas. Writing things down helps you get organized. When you are organized you can develop a plan, and when you develop and follow through a plan, you will be successful. If you don’t know what you want to get your parents for Christmas, how can you feel good about buying them a gift? Likewise, if you don’t know where/why you are spending your money, how can you feel good about spending it? There are few feelings worse than working hard to earn money only to realize you have nothing to show for it in your bank account at the end of the month. The goal of this post is to change your perspective on the written budget, and use it to help yourself get ahead (or catch up) financially. Budget is not a bad word.
Step 1, Get Organized: When you are getting your written budget organized, know that there are three key components that must be included in every successful plan:
Once these key components are accounted for the rest of the budget is determined by you. The places you will spend your money (water bill, electric, spending money, car, groceries, going out to eat, shopping, rent, etc.) will be different from the places your next door neighbor, best friend, or coworker spends his/her money. You might even share some of the same outgoing categories, but because you are different people with different lives, the amount you spend in each category will certainly not be the same. You are the CEO of your own bank account. Rise to the occasion and be a boss. Remember this is your budget, and you give yourself control over how much money you will be spending in each area. If you think you can get by with $200 a month towards groceries, then you shouldn’t budget more than that. If you don’t feel like you can compromise your gym member or cable, hey, that’s your prerogative.
Make a list of all the places you will be spending money during the designated time frame. You will need to find a way to organize the dates, amounts, and areas of your spending. At the end of the month you will have a visual representation of how much you made, how much you have left over, and where the heck all of the money went. Everyone has a different method of organization, but finding the best method for you is what’s most important. Some examples include Word document, Excel Spreadsheet, or a simple piece of graph or notebook paper. I also group my “outgoing destinations” according to priority and consistency. For example, all of my recurring monthly payments are listed at the top (rent, bills, debt, etc.), the areas I withdraw cash for are grouped together in the middle, and my wildcards are at the bottom (areas where life and spending fluctuates – gifts, charities, work purchases, airfare, etc.). If you are having difficulty initiating the organization process, you can click on the links below to see how Sam and I currently have our 2 week pay plans set up.
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Step 2, Get to know yourself: More than likely you are going to follow all the organization steps I mentioned in Step 1, and when you start your first budgeted pay period, you’ll get halfway through and wonder what the F you were thinking when you originally created it. Don’t give up, that is totally normal (and frustrating). The first several pay periods are going to be a chance for you to really get to know yourself, what you value, where you are spending too much, and where you need to spend a little bit more. Maybe you will be surprised, and maybe you won’t. Remember that there is no right or wrong budget. Everyone’s budget is individualized
Step 3, Get reorganized: You got organized once and got to know yourself during your first attempt at a written budget, and that probably means it is time for you to get reorganized. You might have to repeat this step a few times before moving on to Step 4. That is totally normal, and it should become easier each time. During re-organization you might need to switch up your budget template—I started with a Word document and moved on to an Excel Spreadsheet to simplify and eliminate math calculations. You might need to add or eliminate categories or increase or decrease the amount of money you are allocating to one area. Once you have organized, gotten to know yourself, reorganized, reorganized, reorganized, and reorganized, you are ready to move on to Step 4.
Step 4, Keep it current: Once you have a template that changes very little, make sure you know the places you will be spending and amounts you will be spending BEFORE that time frame actually starts. The theory (and this is taken from the all-knowing Dave Ramsey) is that if you determine where your money is going before it enters your bank account or hands, the chance of impulsively or irresponsibly wasting—er, I mean spending it—decreases to almost no chance at all.
Step 5, Enjoy it: What I’m about to tell you is 100% truth. Having a written budget has made my life easier, not harder. Payday has always been fun, but the day before payday is even better because that is when I get to transfer all of the money I’ve allocated to my cash flow to my debt payoff plan. The final number that falls in the box for “Income-Outgoing” can go to any type of fund you are currently trying to build—for example, down payment on a house or car, Christmas gift fund, travel fund for your best friend’s destination wedding, your emergency fund, or simply your savings account. Before I get paid, my planning ahead has given me a goal number that I want to hit at the end of my two week time frame, and it also provides me with a visual map of how I can get there. There is no guess work. There is no wondering if I have enough money to pay the rent, buy new shoes, or get a plane ticket to see my family at the end of the holidays.THERE IS NO PANIC. I am in complete control of my financial situation, and the peace of mind is worth every annoying second I spent working out the kinks at the beginning of the process.