“I spent how much at Starbucks this month?!”
“Where did all my money go?!”
“I thought I already paid that bill.”
Are these questions that you find yourself saying often? I have been round and round the budgeting game for most of my adult life. Bottom line is, I stink at planning how to spend our income without it written on paper (or entered on a spreadsheet), and then keeping up with it. I would check our bank account everyday online, but the money still seemed to vanish as quickly as it came. Does this strange phenomenon happen with your money as well?
You gotta do it
The answer that no one wants to hear is budgeting. If you want to stop the financial headache, you must budget. Dave Ramsey says to “spend everything on paper before the month even starts” meaning that every single penny of your budget should be allocated to a particular category of spending, or you will wander and waste your money.
How do I get started?
So how does budgeting work? If you know how to add and subtract, or have access to a computer that knows how to add and subtract, you can budget. Start by writing down all of your monthly income. Make sure you include everything that you normally receive within a month’s time (include things like dividends, interest income, salary, side jobs, etc.). Once you have all of your income totaled, you have a starting point for your expenses.
Begin writing down your expenses, starting with the fixed ones, or the ones that don’t change month to month (i.e. your mortgage is $1000 every single month). After you have those written down, write down the expenses that vary by month (i.e. utilities, gas, groceries, etc.). Based on your previous spending in these categories, estimate a monthly amount to plan for. Don’t worry if you aren’t sure, it will take a few months to get your budget to where it is truly accurate.
After you’ve entered your regular income and expenses, think about your irregular spending that should be planned for (i.e. Christmas spending, doctor visits, haircuts, birthday gifts, etc.). Try to plan an annual amount that is spent, divide it by 12, and set aside that much each month for that category. For example, our family pays car insurance every six months because we get a discount for paying that way. I divide our semi-annual payment amount by six and put that much in a savings account each month. When the bill is due, I just pay it out of savings.
After you’ve put everything you can think of into the budget, review it and see how it looks. Did you plan for savings? Retirement? College? Paying off debt?
Subtract all of your expenses from your income. How much is left over? The goal is to have $0 left over. Every single penny needs to be allocated somewhere. Add in some spending money or simply a miscellaneous category. Review each category until you get to $0 left over.
Practice makes perfect
Now, start entering your receipts. Record everything that you spend. Everything. Put it in the correct category and keep up with it. I made this part of my morning routine so I don’t get behind on recording receipts.
The first month will likely be pretty off. You might have over-funded one category, and under-funded another. Don’t get frustrated and stop budgeting, just adjust your categories and keep moving along. By the third or fourth month, it should be pretty accurate.
Tips and tricks
If you are married, try to budget with your spouse. You could have weekly “budget meetings” after the kids are in bed (romantic, huh?). You are more likely to stick to your financial goals if you work on them together. Plus, it alleviates the temptation to hide spending, or blame your spouse for your financial stress.
Over-fund the grocery category. This seems to be the category that is the bane of my budget’s existence. Unless you have a couponing binder, you probably spend a lot on groceries.
Try software! I asked around for some online tools that help with budgeting. Here were the most popular:
- Mint.com- The best thing about Mint? It’s free. Not only does it help you create and maintain a budget, but you can also integrate all of your online accounts. This means instead of checking a different website for each checking account, loan, credit card, etc., you can simply log on to mint.com for view every one of them.
- PearBudget.com- Pear Budget is the simplest budgeting tool I have come across. At $5/month, it’s affordable for any budget. It is so easy to set up your budget, enter receipts and review your spending. Personally, it’s my tool of choice for budgeting.