To many people, budgeting is a dirty word. It conjures up feelings of fear, inadequacy, restrictions, maybe even anger. But it doesn’t have to be that way.
On the contrary, my budget has brought me peace, contentment, freedom, and joy! Having a simple budget allows you to control your money instead of your money controlling you.
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When you know exactly what you have and where it needs to go, you are free to spend without fear knowing that all your needs will be met. The best way to begin is with the basics.
Follow these three steps and you’ll have your first simple budget written in no time at all!
Write Down All Of Your Expenses
For now, don’t worry about your income. We’ll get to that shortly, but for now, I just want you to brain dump every single expense you can think of onto paper.
Don’t worry right now about whether or not you can afford it – we’ll cover that too.
Your monthly expenses may include things like rent/mortgage, utilities, food, transportation costs (gas or commuting), clothes, debt payments, and spending money.
You also will want to include any expenses that only come around yearly or every few months. This may include things like insurance (home, life, car, etc), subscriptions, license & taxes, and trash pick-up.
If you’re not sure or can’t remember all of your expenses, pull out your bank statements for the last few months and comb through them looking for anything you might have missed.
Adding your non-monthly expenses to your budget is an important step that many people skip. We think, “I’ll just worry about it when the bill comes.” The trouble is, when the bill comes, you’ll likely be just as unprepared as you are now and may end up creating more debt.
That’s not the way to find financial peace.
Write Down All Of Your Income
Now it’s time to figure out what you actually earn each month. Include every source of income no matter how small. Every little bit helps.
The reason we do this step after writing down all of our expenses is that I like to get everything down on paper first without feeling limited by income.
You need to have a true picture of your financial situation so that you can make a clear and informed decision about your priorities.
You should also include any funds you currently have on hand. You may not have any, and that’s fine.
But be sure to write down any amounts you have in a bank account (checking or savings) and any cash you have on hand. You’ll want to use this in your budget as well.
Set Up Your Simple Budget
This is the fun part, right? Ok, maybe not for everyone (I’m a budgeting nerd, so it’s fun for me…). But now is when you get to give those dollars you have a job to do. You now know your expenses and you know your income.
So let’s go ahead and put that income to work. First, figure out what you need to pay first with the money you currently have on hand. What bills are due next? List them in order.
What other expenses do you need to plan for before you get paid again? Maybe you know you need to go grocery shopping or fill up your gas tank. Maybe your kids are in desperate need of some new shoes.
Whatever expenses you know are coming up soon, make sure to budget money for those first.
Once you have all of your immediate obligations accounted for, you can start applying money towards expenses that aren’t as immediate. If you’re able to cover the whole month, then you’re off to a great start!
Don’t forget to also include a sinking fund (a separate category) for expenses that only come around once or twice a year.
You’ll be much better off to budget a little towards those expenses each month than have to try to find a big chunk of money when the bill comes.
If you are able to cover all of your immediate and long term expenses with what you have now, then go ahead and start budgeting for next month. If not, that’s ok too.
Just cover what you can and when you get paid again, pick up where you left off!
Can You Afford Your Lifestyle?
This is the moment of truth. Does your current income support your lifestyle or do you need to make some changes? The reason so many people never stick to their budget is because of this very step.
We begin to feel overwhelmed, angry, and, well, poor. We don’t like the fact that our budget tells us there’s just not enough money to do all the things we want to do.
So instead, we stick our heads in the sand and keep spending, digging ourselves deeper and deeper into debt. And along with all that debt comes despair.
I want to challenge you, do not give up now. Instead, take a good, long, and hard look at where you’re at and vow to yourself that you’ll never be here again.
Because right now you are making the choice to change your financial story. Your simple budget will help you do that.
If you are one of the many who are currently living a life you really can’t afford, don’t panic. You can turn it around, slowly but surely.
There are a few things you can do right away to help you gain some more financial security.
First, get rid of any unnecessary expenses. Your most urgent priorities are food, shelter, clothes, and transportation. Once you have those covered, you can begin prioritizing what’s left.
I recommend establishing a baby emergency fund of at least $1,000. Yours may need to be a little more or less depending on your specific situation, but you need to make sure you have a little cash on hand for those unexpected expenses (car repairs, emergency room visits, etc).
This is especially true in the first year or so of budgeting when you’re still learning and adjusting for all the expenses you have (some of which you may have forgotten about when you first created your simple budget).
You want to avoid creating more debt whenever possible.
Next, minimize any necessary expenses. Try cutting your grocery or gas bills by a few dollars each week to start.
You can also call your utility companies and ask about any promotions or alternate payment options they may have. And be sure you’re using your utilities efficiently by turning off lights, unplugging unused electronics, and turning your thermostat down.
Finally, look for additional sources of income. I know this isn’t usually ideal, but the goal is to get you back on track in the short-term so that you can start winning with money in the long-term.
Congratulations! You’ve written your first simple budget! Now comes the hardest yet most rewarding part – actually following it. Stick with it and I promise that very soon you will be free from the burden of financial stresses!
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