Part Three: Putting it all together on paper.
After reading the first two installments in this series, you should know how much you have to spend on your:
- Needs – The essentials for survival (food, shelter and utilities), health (cell phone and insurance) and employment (day care and transportation).
- Savings – To start building an emergency fund and later, to begin building wealth through an employer matched or other tax advantaged retirement account.
- Goals – Whether your goal is saying sayonara to that stifling student loan, saving for a trendy tiny house, or paying off the charged clothes, shoes and accessories you’ve long since donated.
- Motivation – One or two small wants to help stay focused and sane.
Finding or developing a budgeting system that works for you is key. There are existing online tools and apps like Dave Ramsey’s Every Dollar, which I’m sure are perfectly fine, but I use, like and recommend Microsoft Excel. I do like Mint to track net worth, but the work of manually updating a spreadsheet on the regular keeps me better in tune with how my money is being spent and staying on top of when bills are due.
In addition to the mechanism, you’ll want to determine the best budget cycle for you. When deciding if you want to budget by the month, by the paycheck, or by the week, consider your largest expense and if it can be covered by a single paycheck or if you’ll need to accumulate cash over the month to pay it. Also, think about the frequency of your pay days. Do you get multiple checks every month or just one? Are you paid consistently on the same date every month or in other intervals, like every other Friday?
I’ve always budgeted by the paycheck. I’m paid every other week on Thursday, and have always been intentionally careful to be able to cover my biggest bill (rent or mortgage) with a single paycheck, plus a little leftover for food and necessities for that two-week period. The other paycheck I used to pay my utilities, student loan and car payment, and contribute to my ROTH IRA.
When Ryan and I got married, he moved into the house I bought before we met. So when we created our first budget after tying the knot, it was easy to keep making mini-budgets for every paycheck. Breaking it down makes our sacrifices more digestible (like for my new husband, no more ESPN!) and when we make mistakes, its easier to forgive ourselves and move-on knowing the next budget cycle isn’t more than a few days away.
Here’s what a month of budgeting might look like broken down:
As you get started building your budget, you’ll need to consider:
- What information you want your budget to capture. I record the date of payment and confirmation or check number. You could include due dates, or create separate columns for the beginning balance and balance used for line items like food and transportation, which won’t always be spent in a single purchase.
- If you need one, where to park your sinking fund. Should you keep that in a separate account or your existing checking or savings?
- How comfortable you are with your checking account being close to a zero balance as a budget cycle comes close to an end. Do you live on the edge, or sleep better knowing you have a buffer should 7-Eleven place a $50 hold on your debit card for $15 worth of gas?
- You should have a purpose for every dollar you make and ideally, be at zero at the end of every budget cycle. But do make a plan for what to do with any money left over – and what you’ll do if you find yourself short.
Once your budget is down on paper or saved to the cloud – follow it. Limit your spending to what’s dictated there. And don’t wait until the end of every budget cycle to track expenses. Establish a ritual and tie the act of updating your budget to something fun. Start the morning with a latte and your spreadsheet, or end the week with wine and a review of all your expenses.
If you’re unable to follow your budget, reevaluate it. It may take more than a few cycles to get your numbers to align or perfect your plan. And once you’ve gotten into a grove, continue to customize your budget to meet your changing needs. Create a color coding system. Learn more about using formulas and other advanced Excel functions. Start a semi-humorous blog about budgets.
A budget is the first step in taking charge of your money. I hope you find empowerment in living and spending intentionally. Celebrate each milestone along the road to achieving your money goals, including this one… Cheers!