How To Create a Budget and Stick To It
I wrote a few weeks ago about some simple money saving hacks and got a great response from all of you about it! So, this week I thought I’d share a little more about how to create a budget and reign in your spending.
I feel like I start a lot of my posts with this same disclaimer, but I’ll do it again. I’m definitely not an expert in this area. I’m still learning as I go along, but I feel like I’ve found something that really works for me! You’ll definitely have to do some work and experimenting to figure out what’s going to be right for you and your family! Right now, my personal income is not 100% fixed. I’m an independent contract as well as a small business owner, and while I have an idea of what I’ll make each month, it fluctuates. Therefore, I focus a lot on how much expendable income do I have in the moment.
Also, I’m going to have examples here with income and expense numbers that are 100% made up – I’m super open to sharing, but I don’t know, I don’t think I need to share that much.
Stop Avoiding The Problem
If you know you’re struggling with your finances, or if you can admit you’re not quite sure where all your money is going, you have to start facing it head on. Believe me, you are not alone in this struggle! I was the QUEEN of avoidance when it came to my money. In all honesty, I would rip up bills before even opening them because they stressed me out. It wasn’t even that I couldn’t pay them, I simply didn’t want to sit down and look at all of it because it overwhelmed. I’d just toss it in the trash, let it hit my account automatically and hope for the best. (ß very poor strategy, my friends…) Finally, I got to a point where I just knew I could no longer manage my money in this way.
So, I sat down and figured out a budgeting and tracking system that would work for me! I want to also point out that the tracking has been key for me. It’s what has forced me to stop avoiding my finances. Sure, I’ve made budgets in the past. $50 for gas, $200 for groceries, etc. Hooray! I made a budget! Yeah, except that I didn’t actually track whether or not I was sticking to it. So…. what was the point of that??
The Dave Ramsey Method
The method I’m using is pretty much the Dave Ramsey method, with a few tweaks to make it right for what I need! I really like his Zero Budget system where every dollar is assigned to something specific (whether it be an expense or savings) so that your budget always comes out to zero. His snowball system for debt has also been HUGE for me. This is where you tackle your smallest debt first. Once that is paid off, you take that payment and apply it to your next smallest balance, and so on. Here’s an example of how this might work:
How to Create a Budget and Track It
As of right now, my husband and I keep track of our finances separately. We have divided our expenses in a way that works for us. That may work for you and your partner, or you may want to combine everything. There’s no wrong answer as long as you’re communicating about it and doing what’s best for your family.
1. Fixed Expenses
So, I sat down and first made a list of all of my fixed expenses. Fixed expenses are things that are not going to change month to month. For example, your rent, car insurance, cable bill, subscription services etc. I also include credit card bills in this category. I have 100% STOPPED putting a single dollar on any credit card, so I know exactly how much I’m putting toward each card every month in order to pay them off as quickly as possible.
2. Variable Expenses
Next, I made a list of all other expenses I knew I’d have consistently, but that will fluctuate from month to month. For me, I listen only NECESSITIES. Think things like groceries, gas, diapers, etc. Because I am laser focused on the goal of paying off debt and saving money, I am not including things like going out to eat or getting coffee as part of my regular budget. If I am on track to hit my savings goals, I will add a few of those things in.
Based on prior spending, I gave myself an estimate for each item with a goal to not spend over that amount. Now, I had an idea of exactly how much money I would need for every expense I was certain I’d have. Here’s an example of what fixed and variable expenses might look like.
3. Non-negotiable Savings Goal
Next, I set a non-negotiable amount of money that I want to save each month. I treat this as if it is a fixed expense that I must pay. I figured out this amount by deciding that over the course of this year, I want to save an additional emergency fund of 4 months’ worth of expenses, so I just divided that number by 12. To this savings goal, you can also add retirement savings, college fund savings, etc. Whatever works best for you in this season of your life.
4. Daily Tracking
Part of my morning routine is now reconciling my bank account in the budget document I created. On the first of the month, I set up the document with the amount that is currently in my checking account and then I list every fixed expense and the date that I know it will hit my account. I have everything possible set up to autopay so I know it can’t be missed! Note – I don’t input my income until it hits my account. However, I put in every known expense before it hits my account. Yes, that sometimes means a scary looking number, but I’d rather see what my expendable income is, minus all expenses, on any given day. I do this because in the past, I had a tendency to see a number in my account and think, “Great! I can go shopping or get my nails done!” In reality, there were more expenses that needed to come out of that number for the rest of the month, so I didn’t have as much expendable money as I thought.
Here’s an example of what this might look like on the FIRST of the month. (I included a fake income amount so it doesn’t look like this fake person is in the red…)
Each day, I check my bank account and I edit the document as needed. I add in my income when it hits my account and I deduct additional expenses as I make them.
I can’t tell you how HUGE this has been for me to reign in my spending. When I’m thinking about stopping for that cup of coffee or running out to Panera for lunch instead of eating something that’s at home, I think – I’m going to have to track this tomorrow. I’m going to have to see that deduction in my account and put it into my spreadsheet. That accountability is always enough to make me think twice.
I don’t want you to think I’m advocating for zero spending or restricting yourself to the point of being miserable! Absolutely not. When I know I’m on track with my goals, I allow myself to get the coffee or the lunch out and not feel guilty about it. But for me personally, I need that strict accountability with myself or I can easily spend way beyond what I should.
A Tip You Might Not Expect… Gratitude
Ok, this probably isn’t something you’ll see in most articles or blogs about saving money, but I think it’s important.
I truly believe that the energy you put out, positive or negative, comes back to you. I have observed this in my own life first hand with money. I used to live in fear of finances and my money. I avoided truly looking at it with clear eyes at all costs because I didn’t want to know what I’d find. This left me feeling stressed out and with “surprise” expenses I didn’t even know were coming. I felt like managing money was a struggle. I avoided it, and it did its best to avoid me, too.
However, once I changed my mindset about money, everything else changed, too. Instead of looking at my finances with panic, I started looking at them with a sense of gratitude. For every bill I pay, I am consciously grateful to have the money to pay it, and I’m grateful for what that money has provided me. If I’m paying the electric bill, I’m grateful that we are able to have working lights and appliances in our home. If I’m paying for gas, I’m grateful that I have a safe vehicle that takes me where I need to go.
It may sound silly, but I am 100% certain that this openness and gratitude towards money has helped me manifest more of it. There’s a Tony Robbins quote that says, “Where your focus goes, your energy flows.” By consciously focusing on my finances in a positive way, I’m putting more energy into bringing ease and financial freedom into my life.