The biggest thing that has helped us reach the point we are at now is a monthly budget. Yes, I realize I just said what most people consider a dirty word. When most people hear the word “budget” they think of living a life without fun or happiness. Nothing could be farther from the truth! In fact, a budget can become a dear friend. (Okay, maybe not that far…) If you don’t like the word, call it something else. Call it your monthly spending plan instead. In the words of Dave Ramsey: “A budget is telling your money where to go instead of wondering where it went.” I’ve always loved that.
It’s been several years since we started budgeting and only three since we’ve gotten any good at it. We really didn’t get control of our finances until we started using the envelope system. One word of advice about budgeting: It will take work to get it right. You will sit down and create a budget and things won’t go according to plan. Adjust your budget and try again. It took us three or four months to get it down, but now it is only a matter of adjusting it slightly depending upon what is going on that month. In fact, our budget is so similar each month I started using an Excel spreadsheet and just changing out the amount in the categories slightly (such as utilities). It’s really easy once you get it going!
Step One: Track Your Expenses
If you are anything like us, this might hurt a little. Write down everything, and I mean everything you spend money on. When we first did this, we found that we were spending over $400 a month dining out! Talk about wasted money! Now, I’ll be the first to admit I love going out to eat, but it’s not the healthiest (usually) and a lot of times it really isn’t as good as I thought it was going to be. So now, we eat at home more often (especially since we have kids). Keep track of everything for a month to get a good idea of where your money is going.
Step Two: Figure Out Your Income
You have to know how much money you have coming in each month. This should be an easy thing to check – just look back at your previous month to see how much was deposited. You can see this either by looking at your pay stub or checking your bank statement. Take into account every source of income – your regular job, spouse’s income, irregular income, etc. Write it all down.
Step Three: Make A Plan
Take time to make a plan every month. Like I said before, once you get it down it really just becomes a matter of tweaking last month’s budget and really doesn’t take long. In fact, now that we’ve done pretty much the same budget for the past two years, I can do the next month’s budget in about 15 minutes. That’s all it takes.
Write down all income and all expenses and give every dollar a name. This is called a zero-based budget and is especially important. Many months I will write down all our expenses and still have money left over, so that gets to go to debt. (Yay!) Some months there is none, but every dollar goes somewhere. You can write out your budget with paper and pen (I did this for years), get a spreadsheet, or use software such as Quicken. It really doesn’t matter – just do it!
An important note is to do the budget before the month. I actually budget from the 15th of one month to the 15th of the next month because my husband only gets paid once a month so we get a big paycheck then. It just made sense to us to go from one large paycheck to the next so we’ve been doing it this way for about seven years now.
When you are planning for expenditures, don’t forget things that only come up every so often. Gifts, license plates, insurance, etc. are all things that should be in the budget somewhere. I love it when we get invited to a birthday party and I’ve already got some money in my “Gifts” envelope!
Also, don’t forget to plan for FUN. I know it can be hard but try to factor in some fun in there. There are so many cheap or free activities you can do when you are on a really tight budget. We budget $40 a month for entertainment and $100 a month for personal money ($25 for myself and my husband twice a month) because sometimes it feels like you never get to buy anything spur of the moment and having just that little bit of freedom in spending can make a big difference, or at least it does to us.
Here is a little snippet of our budget (and you can snag this FREE Sheets spreadsheet template below):
Yours, of course, will look much different than this. For example, this has daycare, violin lessons, baby expenses, etc. that you may not have. Just budget your own categories (probably less categories than this example). This budget was made on an Excel spreadsheet. You can get this FREE Excel spreadsheet template below!!
Step Four: Be Flexible
Like I said before, your budget will change. And it’s okay. The important thing is to adjust and not to give up. The first step to winning with money is to get control of your budget. If at all possible, live below your means and put all extra to debt. If you need to change anything, agree with your spouse if you have one, make the change, and learn from it. Just keep going. One of my favorite quotes since college says “It’s the joy of the journey, not the destination.” Yes, debt-free is our destination, but we are also having a ton of fun with our family while we’re getting there.