Full disclosure–budgeting is hard.
But you know what’s even harder? Overdraft fees and being broke as hell because your financial life is a disaster!
I can’t say I’ve ever been in a situation where I’ve had to choose between groceries or the power bill, and I am extremely grateful for this. I have, however, stared at my checking account with a balance of $2.45, wondering how creative I’ll have to be to make it to pay day on Friday. Did I mention my car was low on gas and, as a result, I turned into a complete shut-in for the rest of the week?
My point is, I’ve been there, and it sucks. Luckily, I’ve learned a few things since then and can proudly say that I feel more in control of my financial life than ever. It took patience, hard work, and a lot of trial and error during a time when there was no room for mistakes. I was out of college, in grad school, working, and only had myself to rely on. If I calculated wrong or left out an expense somewhere, I was out of luck and didn’t really have a contingency plan. I wasn’t the type to ask my parents for financial help due to a combination of pride and mortification, so I had to be meticulous and create an error-proof plan for myself.
Enter, the Budget. Like I said, I created this budget spreadsheet during a dark time while thinking, “I CANNOT FAIL.” In the three years I’ve been using it, I’ve never once overdrafted or missed a bill. Before considering what kind of budget you need to create, there are a few things you need to accept and come to terms with beforehand (some of which I was already aware of, but others I learned the hard way while navigating this process myself).
No one is too good for a budget.
In a nutshell, rich people stay rich by living within their means. I’m not rich and most people I know aren’t rich, but the stable people have their ducks in a row and aren’t stressing about how they’re going to pay for life because of one thing–they take care of business.
When you know your business is taken care of, you can truly relax and enjoy yourself. It doesn’t matter whether you have $20 total to spend on entertainment one night per week, I promise you’ll enjoy it so much more because a financial storm of uncertainty isn’t brewing over your head. Plus, if you start being proactive about your finances, you’ll begin learning more and making better choices, saving more, and building your assets. You have nothing to lose by budgeting.
Use your check register and balance your checkbook religiously.
Anyone who tells you that they don’t need one because they can always remember their balance in their head is either lying, broke, or doesn’t ever spend money. Every person who has ever told me this has eventually experienced a rude awakening because they forgot about that side trip to Target or that extra drink they got at the bar.
I can barely remember conversations I have from one minute to the next, so you know I’m not going to waste my time trying to remember how much I spent on a coffee at work. And when it comes down to it, what’s so awful about always knowing how much money you have at any given time? Take a couple of minutes to record your receipts at the end of the day. It’s a small price to pay (pun intended!) to avoid a $35 overdraft fee or the embarrassment of having your debit card declined.
The day will come when you can splurge on a shopping trip or treat yourself to an impromptu mani-pedi. But in the meantime, there is real work to be done and seriously evaluating your finances is your first step in that direction. Be honest with yourself–do you need to spend what you’re currently spending. Trim that expense list down to the bare minimum and start with that.
This is where 5 Ways to Minimize Household Expenses comes in really handy. When I sat down to create my budget, I made a list of all my expenses, down to my entertainment and R+R activities. At this point, I was still a student barely making a living wage, which meant that bi-weekly massages were out, eating out was cut drastically, and there would be no more willy-nilly Target shopping (do you see a pattern here?). Impulse purchases instantly became a thing of the past. Before you create your budget, be honest about what you need and what you don’t.
Be realistic, but also realize that you’re starting at the beginning and this is temporary.
The budget is NOT temporary, but your current situation is. Always maintain and stick to a budget, but your income and expenses can (and will inevitably) change, often for the better! If you’re still in school, that’s temporary. If you’re unemployed, that’s temporary. If you’re in the market for a new job, that’s temporary. If your finances are in the dumps and you’re digging yourself out, that’s temporary. Wherever you’re starting, rest assured that if you stay committed and put in the work, you will change your situation. You’ve heard that saying, “the only thing constant is change”? That applies here, too.
After mentally preparing myself, I made two separate lists:
1) The Expense List. This list included rent, utilities, my cell phone, gas money, and groceries (there were probably a couple of others, which I’ve since forgotten). NOTE: Remember to plan ahead and account for expenses like car insurance, which for me wouldn’t be due until a couple of months later. Next to each expense, I wrote down the date the bill was due. I did this because, depending on what your income is like, you need to know when that allocated money is going to enter and leave your account. When you have all your due dates listed, put them in chronological order so you can see where they fall in the month.
2) The Priority List. Don’t stop at your current expenses, make a list of your priorities and what you want to achieve by budgeting. What are your financial goals? Getting out of debt? Building an emergency fund? Saving for a down payment for a home? Saving for a new vehicle? Just planning enough so you don’t have a coronary when you look at your bank account each week? Any reason will do! Whatever it is, I’ve found that having a financial goal keeps me on track better because I know where I’m going and what I want to accomplish by making a change.
After you make your lists, look at your Expense List and evaluate when your bills are due.
You’re going to have to do a little organizing. My bills, for example, were not evenly distributed between my two paychecks in one month. Therefore, sometimes I had to deduct 50% of one bill from the first paycheck of the month and then take the rest from the second paycheck so that I could pay it when it was due later. That prevented me from having a lot of money left over at the beginning of the month, but being completely broke at the second half of the month if most of my bills happened to be due later, or vice versa. My goal was to have a similar amount of money left over after each expense was allocated for each pay period.
From here, I began entering my expenses into the Excel spreadsheet I had created based on their due date and dividing them between pay periods when necessary. The key is looking at your list of expenses, your income schedule (some are more variable than others), and deciding the best way to organize and tackle them.
After creating and organizing your budget spreadsheet, consider how you want to pay your bills.
Do you prefer to pay each one manually when they’re due or is automatic payment a better option for you? Also take your bank accounts into consideration; how many separate accounts do you have and how do you utilize your banking options? One of the most useful pieces of information I’ve learned about banking is simple, but has been a game changer–you can create as many bank accounts as you want!
When I say “bank accounts”, I basically mean sub-accounts under my (now our) name. This can vary depending on your individual situation. Are you single? Are you married but bank separately? Are you married and bank together? Currently, Stuart and I share an account with our credit union, which has a joint checking account we’ve labeled “Bills”, a joint savings account, and separate checking accounts for each of us.
When we budget each pay day, we immediately transfer funds for our reoccurring expenses to our Bills account. This is a no-exit account in that we put money in it, but the only way it can leave is if it’s withdrawn by an automatic bill payment. This way, our bill money is accounted for and we know it won’t get spent by accident. After that, we transfer funds to our savings, which is pretty consistent right now, but can fluctuate depending on when less frequent expenses like car insurance or vet expenses are due. Anything left over goes in each of our separate checking accounts as incidental/personal money for the next two weeks.
This budgeting system took some exceptional planning and forethought on my part. I stared at my computer screen for hours, calculating and laying my life bare in an Excel spreadsheet. After I’d finished and everything balanced correctly, it was totally worth that feeling of relief knowing that I had accounted for everything. I knew as long as I stuck to that budget, I would be OK. When Stuart and I combined bank accounts, we had to do some work and make sure his expenses were integrated properly with mine, but it worked perfectly!
After taking control of this aspect of our lives, we noticed ourselves start to change. We thought about our future more and began making even more financial goals for ourselves. It was amazing how, after basically creating a map of our financial life, more possibilities appeared before us and we could envision ourselves accomplishing more. Our finances were no longer a black hole. We still have a long way to go, but we know where our money is going, how much we have to save, and how much we can afford to spend.
But fear not, you can download my FREE Budgeting 101 Template to get you started!
The template is set up to record bi-weekly paychecks by month, but if your income schedule varies, this can be easily customized. It also accommodates two separate individuals, but if only one person will be using it, you can just delete the cells for the second person.
If you have any questions, don’t hesitate to let me know. This is a constant work in progress and has the potential to change as our goals and financial life evolve. Don’t be afraid to get creative and customize a budget that works for you!