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I recently started a Facebook group called Financial Freedom. It’s a group for those of us looking to learn better ways to budget, pay off debt, save for retirement and reach our financial goals. We will be supporting each other, giving advice and keeping each other accountable for our finances. I’m very excited about this new project and I’d love for you to join us!
This new group has me thinking A LOT about budgeting lately. I’ll be completely honest, I was never taught how to budget. I just had to learn the hard way- which, in case you’re wondering, is the slowest way to learn something. So I thought I’d give some basic pointers on budgeting. This can apply to personal finances as well as business finances.
The single most important component to budgeting is setting your goals. Without goals, you’re budgeting for the sake of budgeting. And there’s nothing wrong with that, but it’s not going to light your fire. So let’s talk about these goals. Both short-term and long-term goals should be made. Your goals should be SMART goals: Specific, Measurable, Attainable, Relevant, and Time-Bound. A great starting point for a goal is to have $1,000 dollars in savings within three months- that’s a really SMART goal. Here’s Dave Ramsey’s take on how to do it in a month. He’s a pretty smart guy, too. (See what I did there?). These goals are very important and are what will keep you from bored Amazon shopping or throwing random things in the cart at the grocery store because you don’t have a list. There is something so energizing about making the “right” choice with your money and knowing you are doing your future self a favor.
The next step is to figure out your income and expenses. I like to get out a notebook and pencil and just start writing it all down. First, you’ll want to take your best guess at your monthly income. This can be a little more difficult for those of us who work hourly, work as freelancers or have our own business. Just do the best you can! When in doubt, estimate on the lower side. Next, put together your bank and credit card statements for the last two to three months. Track where your money is going by different categories, i.e. car payment, groceries, clothing, etc. From this list, note which expenses are “must haves”. For me, this is savings, tithing, utilities, groceries, car payment, insurance… you get the idea. I like to put my savings and giving amounts first. This helps me to prioritize what’s really important. So instead of spending first and then worrying about savings, I get my savings goal out of the way and go from there. While you’re looking through these expenses, keep in mind ways that you can save on them. Maybe you can manage to downgrade your cell phone plan or start to meal plan and pack lunches in order to save money on groceries. The amount you’ve been spending is not necessarily what you should be spending.
After you’ve indicated your “must haves”, look at the rest of the expenses. What can you live without? What can you simply cut back on? I’m not saying you ever need to feel like you’re doing without. Budgeting is like dieting: all things with moderation. You still deserve to enjoy your money. You earned it after all! If going out to eat once a week is important to you, then do it! If your morning coffee ritual is what keeps you going throughout the day, then get that coffee! If you are on a “crash diet” how long does it take before you crash?? That’s not what we want to happen. You need to be setting yourself up for success, not failure. So keep your lifestyle and your personality in mind. No two budgets will be the same because no two people (or couples) are the same.
At this point, there could be some left money left over. Your entire goal with your budget is to break even. You should allocate every dollar that you anticipate on earning. That doesn’t mean you necessarily need to spend every dollar. Make sure that your bills are up do to date and you have a reasonable emergency fund, about $1000. If you have an emergency fund and one of your goals is to get credit card debt paid off, then I say spend it and get them paid off! There’s nothing wrong with that. If credit card debt reduction- or any type of debt that you have multiple accounts, is your goal, Dave Ramsey offers a great resource with his debt snowball plan. If you have any questions about what is “normal” for expenses, this article has breakdown recommendations.
When you have everything in writing, you can transfer your budget to any medium you prefer. Maybe a plain old piece of paper and your checkbook register will work for you. An Excel spreadsheet works really well for budgeting. In the past I’ve used the Every Dollar App on my phone. Just recently, I started using the QuickBooks Online Plus budget tracking system, and so far it works great. So there really is something for everyone, and believe me, I’ve tried them all!
It might take you a while to get your budget just right. It’s okay to tweak it a little in the first few months. Keep in mind, when you have a windfall it’s very important to resist the temptation to get yourself something nice. If you didn’t need it on a month that you had less, you probably don’t need it now. Take this money and use it to your advantage. Pay down a debt or cushion your savings a little bit. Treat your future self, he or she deserves it!
Thanks again for stopping by and best of luck!