At various points in my life, I have tried to keep a budget:
as a college student on a limited part-time job budget,
as a single gal with my first set of utility bills,
and finally as a homeowner with a shared marital income.
It always felt like a burden; a yoke that I just didn’t want to accept. I wanted to be able to splurge on a bottle of nail polish and not have to feel bad!
Last summer after reading Dave Ramsey's The Total Money Makeover for the umpteenth time, budgeting finally clicked with me. I think my mind was finally ready for the task. Moreover, I was tired of working so hard and watching my money leak from our checking account faster than I could track it! We were living paycheck-to-paycheck and only had a little savings. It certainly wouldn’t have been any help in case of an emergency.
Avoiding math has become an artform for this journalism major (they only made me take statistics in college, and I was so thankful to avoid calculus)! I’m not great with complicated math, but I’m convinced that if I can use a calculator to get me on track, so can you.
It’s time to take charge. Are you ready? Really ready?
The good news is that your budget doesn’t have to feel like a restriction on fun. On the contrary; keeping an accurate monthly budget will have the opposite effect. You will:
know exactly how much you have at all times (no more bounced checks or overdraft fees)
feel fine about being generous because you know your needs are already covered
havepeace about being a good steward of your income by limiting your spending in certain categories (hello, wine, magazine, nail polish and pizza!)
There are other more relationship-oriented benefits, but I’ll cover those in an upcoming post in April. For now, here are the tools you will need:
a pencil and eraser (I love retractable erasers because the ones on pencils don’t last when you’re constantly adjusting things, which you likely will be)
a budgeting worksheet (you can find these on Dave Ramsey’s website, or use his template to make your own)
envelopes (for cash)
an hour set aside to make your first budget (really, go ahead and pencil it in on your schedule)
the agreement of your spouse/life partner/goldfish that you’ll come to an agreement on everything
Start by determining the amount of your paychecks for the upcoming month. How much will each check be? How many of them will you receive? Tally up your income and place it at the top of your worksheet. Your goal is to spend every dollar before you actually have it by putting it into categories. As Dave Ramsey says, every dollar has a name and a purpose. This is precisely how you avoid the “where did all my money go?” syndrome.
Create categories for all your fixed expenses. Rent, mortgage, utilities, Netflix, childcare, etc. Fill in how much you know you’ll be spending in these areas and subtract the total from your income at the top.
Budget an amount for gas (we still use our debit card for this one) and assign dollar amounts for each of your envelope categories. We use envelopes for entertainment (movies and concerts), dining out, groceries, mad money (each of us gets an amount to spend on whatever we want), gifts, household items (paper towels, dish soap, etc.), and whatever else you plan to use for cash. You’ll make a withdrawal from the bank to fill these envelopes and then use the money throughout the month. Once it’s gone, it’s gone, so spend wisely.
Continue to allocate your income into categories (debt repayment, savings, retirement, etc.) until you have spent every dollar. It’s a zero-based budget, because you’re taking command of your money and telling it where to go!
This step is critical. Schedule some time with your spouse/life partner/goldfish and have them review the budget. Let them give input if they want to move some things around. If you add more to one category, it must be subtracted to another. Feel free to thumb wrestle or use rock, paper, scissors, lizard, Spock to settle any disputes. The important thing is that although you physically prepared the budget, they have buy-in because they had a say in creating it. As Stephen R. Covey says in the 7 Habits of Highly Effective People, “Without involvement, there is no commitment.” Just to be sure, each of you should sign the bottom of the page. This is your contract that you agree to spend your money this way for the next month. No takesie backsies.
That’s it! Newly created budget in hand, you can create a list of what cash to draw out of the bank to use on your envelope categories. The rest you’ll divvy up into categories as the deposits are made. I’ll give you a sneak peek into my envelope system very soon!
Quick Tip: I get paid on the last day of the month, so I always count that check toward filling the envelopes for the next month (which starts the next day). That way, I can fill our envelopes on the first of the month to get things rolling for the new month instead of having to wait several days (which can cause frustrations, especially for husbands who want their “mad money” to buy LEGO).
The Payoff: Thanks to keeping a monthly budget for most of 2014, we have paid off two vehicle loans and socked some money away for vacations and home updates. These victories have made it all worth it, and it feels like we got a BIG RAISE last year. In reality, we just started managing our money and telling it where to go (instead of wondering where it went!).
Your Turn: Has budgeting worked for you? What advice can you offer? If you’re new to budgeting or haven’t had success yet, what questions do you have?