Twenty-nine dollars. That was it – $29. That was all I had left in my checking account and I was proud. It was when I first got married. We had made it through the month and after everything was paid, we had $29 left. We had paid the mortgage, set aside money for insurance, bought groceries, paid our utilities, had a little money for spending and even saved towards retirement (thanks Dad for teaching me to save early). And we had money left over. It was a good feeling.
To stay in the black when it comes to your money takes a little work. That elbow grease is certainly worthwhile. I look back at the days when I felt rich when I had $29 and wish I spent a little more time these days budgeting and watching every penny so that I could save more. Seems like money slips through your fingers like water.
Sadly, convenience seems to have had a negative impact on budgeting and savings! Everything is electronic now. No more standing in line to deposit my paycheck – just have a direct deposit. No more having cash in an envelope for each budgeted item – just pay on your credit card and earn points. No more going to the mail box and finding bills to pay with handwritten checks – just get e-bills with your online banking. All of that convenience is great, but it keeps me from feeling connected to my money. It is much easier to spend on a credit card than it is to let go of cold, hard cash!
If you at the end of every month you wonder just where your money has gone, budgeting is the place to start. For this to be effective you have to disassociate yourself from the emotions of money and you can’t be too hard on yourself either. You have to look at this from a business point of view so that you can make good decisions. I read a study once (I’m a voracious reader. However, I can’t always put my hands on the link, book or study when I want to share it. This is one of those cases. You will just have to take this for what it’s worth) that said if you put a baby in a playpen they will go right up to each and every edge. If you put a baby on the floor in the middle of a big room you might think they will explore the entire room. But, the study showed that the baby stays in a space smaller than the playpen. Without guardrails, they don’t feel as safe and don’t explore as far. I think this lesson applies to our money. With guardrails in place, we are free to enjoy life. Without guardrails, you can be spinning out of control and have no idea where your money went at the end of the month.
How do you set a budget? Where do you start? What kinds of things should you consider?
Step 1. Figure out how much money you make
Gather up your tax returns, your paystubs, your bank statements…whatever it is that shows you accurately what income you have each month. Be ruthless here, look at what kind of income you have. Is it recurring (will you get it each month)? Is it variable (the amount changes based on an underlying factor like your sales or hours worked)? Make sure that the income you use is going to be there. If you have a job where your income is variable or you are self-employed, look at what you made over the last year or two and take a number that is less than that…..you are putting yourself on a salary; anything you make over this number is gravy. After having gravy for a few years, you can give yourself a raise.Should you give yourself a raise? Click To Tweet
Step 2. Deduct out what comes out of your paycheck
Look at your income you calculated in the last step. The gross number is a lot larger than what gets deposited into your bank account. You have to take this into account. So figure out what you pay in taxes, insurance, 401K, etc. before you ever get a dime. My advice here is to make sure you are maximizing your 401K. Many employers have a match of some kind. If you don’t contribute, you are throwing money away. You wouldn’t turn down a raise so why turn down an employer match to your 401k? In addition, money put into a 401K is pre-tax, so it doesn’t hurt as much when you take it out. Bottom line, if you can save something you should! After you figure this out, you have your net income number.
PROTIP Maximize your 401K; it’s like giving yourself a raise. Click To Tweet
Step 3. Figure out your expenses
This is often the hard part. I suggest you start with your recurring expenses; rent, car payment, student loans are all examples of regular recurring payments. Then take an average of your semi-recurring expenses; think utility bills, car insurance, daycare, prescriptions and the like. Then spend a week writing out everything you spend (or go back through your bank and credit card statements) so you can come up with a good average of what you spend on other items like groceries, eating out, clothing, entertainment.
Step 4. Write your budget
Once you have done the hard work of gathering all of the information, this is actually the easy part. Fill in the blanks on a budget form. If you add up everything and you have money left over, go back and add that money to a savings plan. Every penny should be allocated to help keep you accountable to your budget. If you add up everything and you have more expenses than income, take a look and see where you can cut back . If that seems insurmountable, reach out for help.
Step 5. Put your plan into action
A plan doesn’t do you any good if you don’t execute on it. Print your budget. Have subtraction lines so you can account for what you spent. Stop spending when that category runs out of money. If your grocery budget runs out, you might have to switch money from entertainment to food.5 easy steps to create a budget Click To Tweet
This is a learning process. Don’t be afraid to step back and make changes. The more you refine your budget, the more success you will have, and the faster you will reach your financial goals.
If you have a burning question or just want to chat — I love to be social……you can reach me on Twitter (@ChrisellaLoans), Snapchat (Chrisella2), CyberDust (Chrisella), email ChristyS@StarkeyMtg.com, at the office at 912.721.9400, and my website. Find out more about me and more ways we can network (Facebook, Instagram, Twitter)
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