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It’s sometimes considered a curse word in many households today: the dreaded budget. I know, I know . . . you’re probably rolling our eyes because you think it takes too much time, doesn’t work, whatever the excuse du jour. But that’s because you’re probably in the 60% that doesn’t use one. If you change your perspective just a tad and learn how to spend your money on paper on purpose, your budget will soon become your best friend. For me personally, once I mastered this step, getting out of debt was as easy as pie.
First, let’s get you acclimated to what a budget looks like in case you’ve never seen one. 🙂 Here’s an example of one on paper:
As you can see, it helps you to list your monthly outgo. To keep me honest, I started by saving every receipt for any and all purchases for an entire week. If I spent $40 on gas, $37 on eating out for lunch, $118 on groceries, $2 in the vending machine, and $23 on Starbuck’s, I made note of it. This helped me give every dollar a name.
Once I mastered my monthly budget on paper, I graduated to the automated formulas of Microsoft Excel. This is actually the budget I still use to this day:
(In case you’re curious, the yellow sections are for expenses that come up every once in a while, but because I know that the bill is coming, I tuck something away for those items every month so that I’m not surprised.)
A trick that helped me in the beginning was that I over-allocated in a few areas because I knew we were more likely to go over when it came to food and clothes. But once 3 months passed—and it will probably take that long for most people to find a rhythm—my budget fit our lifestyle and had me on track to reaching my goal. I was choosing to take the road less traveled and actually telling my money what to do each month!
TODAY’S BITE-SIZED TO-DO: Track your expenses for an entire week. Be honest with yourself because this is a pivotal step in helping you reach financial freedom. Save every receipt or make note of every purchase. Then block out 30 minutes, get out a legal pad, and chart your spending. If you blew $20 on miscellaneous, that’s fine! As long as you know where your money is going, you can allow that splurge. (I recommend downloading a basic budgeting form from DaveRamsey.com. There’s even a template for folks with irregular incomes, those who get paid on commission, etc.) Start small and create a mini-budget for one two-week period. After that initial two weeks, review your plan to see if you overspent or can cut back in an area so that you have more money to throw towards debt. Make any necessary edits and try again. Continue to chart your progress until you feel comfortable with a monthly budget you can stick to.
In the next post in this series, we’ll tackle cutting up the credit cards (ouch!) and building your mini-emergency fund. Read it now.