Do You Have a Budget?
Having trouble keeping a balance in your bank account? How about keeping cash in your wallet? Or even simply being able to afford to pay all your bills? It’s because you are not setting a budget for yourself. Think of a budget as the foundation of your “Financial Building.” In order to achieve this financial building, there needs to be something to anchor your structure. Without a foundation, you will not be able to build further and focus on other plans. The reason I say a set budget is because a budget needs to have a constant, or an on-going oversight. What good is a new building if there is no one to decorate the offices, no janitors to clean, and no mechanics to fix what is broken? A budget must have oversight. Just having a vague idea on how to spend your money will not work (trust me, it will not.) Follow these 4 steps to a beautiful budget, and you’ll be well on your way to your own financial freedom.
1.) LEVEL YOUR GROUND
Before you start pouring concrete, throwing up walls, and hammering your roof, you need to level your ground. What I mean by this, is that you can’t just throw things together and hope everything will naturally balance. Just like all other things in life, budgeting needs attention (great news…you don’t need to buy dinner or kill bugs for your budget;) Attention is not only the most important aspect of successfully implementing a budget, but it’s also the hardest. I often find myself out and about making money decisions without keeping my budget into consideration. So how would you overcome this obstacle? This one simple task helped me the most- keeping your budget on your mind. I will admit, keeping your budget in mind can be a very difficult task to achieve. Here are a few things that helped me keep my budget on my mind-
- Text alerts from your bank.
- Carrying a calender/journal.
- Put it in your phone!
Every time I make a purchase over a certain threshold, my bank sends me a nice little message telling me that I have made a purchase. This may not be the most effective tip mentioned, however, it is a nice way to remind me not to go splurging. I also started carrying a calender/journal with me to work and other places. Carrying a calender/journal has helped me out tremendously. By writing down what you spend and how much something was, you can keep track and remind yourself how much you’ve recently spent (it’s like keeping a food journal.) Looking back and seeing how much on average you spend each day can really place a perspective on what you are really buying (those $5.00 cups of coffee can add up!) Not a journal guy? No worries, you can do the same in the calender on your smartphone! By just doing these, you can remind yourself in hindsight whether you have stuck with your original budget or not. With what I have just told you; forget what you think needs spent where and start with a blank piece of paper, a keyboard and monitor, or a pre-made template. Need some help? Check out these templates from our friends at Budgets are $exy.
2.) POUR YOUR CONCRETE
Pouring your concrete represents the skeleton of your budget. How much money do I make a month? What are the essentials I need to pay for? How much should I save? Where can I slim down spending? These are all questions we should ask ourselves when considering what to allocate where on a budget. Once you have a blank blank template, you now need to decide what you consider are your essentials. This may include rent, gas and groceries, utilities (see my post on saving money on utilities), phone bill, credit card bill, and a car payment. Think of it as anything that will negatively impact you if you were to stop paying them. These are your constants. Your constants should not change over time, sometimes they may, but these items should stay somewhere around the same amount as time goes on.
FIGURE OUT YOUR INCOME
One of the easiest ways to figure out your monthly income is to pull a recent bank statement. Not only can you view your average monthly income, but you can view where your money is going. Hold on to this document (this document will help tremendously when planning your budget.) Do you notice all those $1 or $2 purchases on your statement? Yeah, those coffee’s and chips at the gas station can sure add up…
3.)COMPLETE YOUR EXTERIOR
The skeleton of your budget should consist of the essentials and money you should save (we’ll chat about the extra spending money later.) Let’s say Justin Bieber takes home $1,000.00 a month (after his mom’s cut.) Justin has to pay rent, a phone bill, credit card bill, utility bill, gas, groceries and an internet bill. He writes down his largest debts to his smallest debts in order, such as this:
- Rent- $350
- Groceries/personal care- $100
- Gas- $90
- Phone- $75
- Credit card- $50
- Utilities- $50
- Internet- $25
The necessities add up quickly don’t they? These items alone add up to $740! He’s now left with $260 of extra spending money…
FIGURE OUT HOW MUCH TO SAVE
Figuring out how much money to save can be a daunting task. Often times, the reasons we fail at saving money are due to emergencies, splurges, paying no attention to our funds, and etc. We simply do not know how much to save, and where to save. Employer sponsored 401(k)’s, IRA’s, Roth IRA’s, CD’s, Mutual Funds, Stocks and Bonds, High-yield savings accounts or Low-yield savings accounts (if you save in today’s economy,) and Money Market accounts are all but a few ways to save money. Whew… where to start? I will start with this- if you have an option to partake in an employer sponsored 401(k) TAKE IT! If you’re not; you are losing FREE MONEY. Employer sponsored 401(k)’s are great, but not all of us have this option. I recommend starting with 10% in a simple savings account. Does this seem like too much? Then do 5%, or even 2%. The point I’m trying to make is that all you need to do is START. ← Often times this is where the issues lay. If your employer offers direct deposit, then have them allocate 10% into a savings account so the amount you save can really be saved and not in your hands to spend.
So lets say Justin saves $100 a month in a savings account labeled, “emergency skin-tight jeans fund” if things go awry. Justin is now left with $160! Justin is one happy camper.
4.) FURNISH YOUR BUDGET
$160 left over after all the bills- woo woo! What a nice time to go to Whole Foods and spend all your extra money on a loaf of bread, and one coffee bean. But before you do that, think wisely about how that money should be spent. We now need to fill this financial “building” with the furnishings to complete construction. Challenge yourself to only go out to eat once a month, by making it a special occasion. At the least you’ll have something to look forward to each month. Like video games? Plan to only purchase the game that you really want, and even so, wait and purchase it used.
This should be the basics of your budget. Over time, hopefully, once you learn more about frugality you can save more and spend less! Many of the example I gave you can be cut tremendously with a few simple changes. After all, we all can’t be like Justin Beiber now can we?
Thank you all,