One of the top frustrations I hear from Pearls is that they have started a budget and then fall off budget time and time again.
Frustration starts to build and she starts to feel hopeless. She feels like her future only holds piles of bills and overdraft fees.
THIS IS NOT YOUR FUTURE!
Today I am going to hold your hand and walk you through setting a customized budget focused on your goals, on what gets you excited!
Now this is a long post but stick with me here. You can easily follow these eight steps and by the end of the day, TODAY, be on your way to achieving your dreams!
About five years ago hubby and I found ourselves feeling the exact same way! Almost without fail, every two weeks a frantic text was sent “Stop spending! $0 balance in Wells Fargo!”
We also knew it was our dream was for me to stop working but still be able to get out of $20,000 in debt, save money, and buy a house. But how were we going to be able to make all of that happen when we couldn’t even stick to a simple budget?
Our dreams were big and we figured out a way to make it happen! It started with finding a way to set a budget we could actually stick to. A budget that actually worked for our family! I want to teach you how to do the same thing!
Living paycheck to paycheck was getting exhausting and it felt like we would never be able to claw our way out of the endless money pit we were sinking in.
We were tired of starting over again and again with a “budget”. Eventually we figured out what our problem was and maybe you are having the same issue.
Do you really know how to start a budget that is customized to your personal finances?
We kept trying to copy exactly what we saw other people doing, but the problem was, we didn’t have the exact same financial blueprint.
When you are trying to figure out how to start a budget that you can actually stick with, there are six simple steps to follow that will help you create your own personalized budget plan.
These are the exact steps YOU can take to finally set up a budget that works with how YOU get paid, what expenses YOU have, and help you start achieving a life you never thought possible!
8 Steps to Starting a Budget For The Last Time!
Before you get started, make sure and grab your FREE Budgeting Starter Kit!
This is the exact method our family has been using for several years and has helped us to pay off over $20,000 in debt on just one income, then immediately save $20,000 in one year and buy our first house!
1.Figure Out Your Monthly Income
This is probably the most unique part of your budget. Everyone gets paid differently. Not only is the dollar amount different, but the “when” you get paid part is going to vary from person to person.
Is it monthly, bi-monthly, weekly, or bi-weekly? Catering your budget to the “when” you get paid is super important.
Take a look at your most recent paychecks over the past three months. To be on the super safe side of things, base your budget off your lowest paycheck.
This will be the safest way to prepare your budget. If you happen to have a higher than usual paycheck then you are golden!
But if for some reason you have a low paycheck, maybe you didn’t get all your hours for the week, then you are still able to pay every bill and won’t get in the vicious cycle of being behind on your bills.
2. List Monthly Expenses
The second key ingredient to setting a budget that allows you to work towards goals that get you excited, is making it clear the difference between the expenses your family can not survive without and others that are non-essential.
Simply make a list of your monthly bills and expenses, go through every single item and in all honesty, decide if your family can live with or without. This step is not categorizing your spending (yet) but creating a list of bills and expenses that have to be paid every month.
Here are some examples, food – essential, cable – nonessential, car insurance – essential, rent/mortgage – essential, Netflix – nonessential, or fast food – non essential.
From here, create two lists, essential expenses and non-essential expenses. Keep this closeby to use in a minute.
3. Track Your Spending
It’s now the time to figure out where all your money is going each month. If you’re like us, then you probably wondering where in the world your money is disappearing to!
Before we had our budget set up, this is literally how we would work every paycheck… “Yes! It’s payday!” Now we were able to go out to eat, go to the movies, buy that new shirt I wanted, grocery shop, and anything else we needed.
Four days before the next paycheck… a frantic text was sent to hubby “Don’t spend any money! We only have $10 in our account.” Too late… overdraft fees and starting the next paycheck behind in bills.
Then the cycle would continue with our next paycheck. Stressful!!!! Not a way to live at all! Chances are you are spending money on things you really don’t NEED!
The key is to figuring out where you are making those mistakes. The first step to getting this problem under control is to track and categorize your current spending.
There are a lot of useful tools to use online or through apps to track your spending. The one we originally used was Mint.com. It’s a super easy way to track every electronic dollar spent and then have your spending categorized without much effort.
What’s your favorite budgeting app? Reply to this email and let me know and we can chat!
If you would rather use a pen and paper to track your expenses, I have a Spending Tracker within my Budgeting Starter Kit that you can download below.
So track your spending for the three months. If you use an online program, they connect to your bank and credit cards and you can very quickly categorize and see where your money has gone for the past three months.
If you are using pen and paper, start tracking today and see what trends you see over the next six weeks.
4.Compare Income vs. Spending
Now take your budgeted monthly income from step 1 and compare it to your average monthly spending from step 3.
Are you spending more than you are bringing in? Are you cutting it close with no room for debt payoff, savings, or maybe retirement?
This is where things start to get fun! Let’s change things around for you and your future!
5.Set Your Goals
This part of setting your budget is going to be fun! You and your spouse (if applicable) need to sit down TOGETHER and figure out where you want to spend your money. You are going to start to tell your money what to do instead of wondering where it went.
What goals would you like to accomplish in the next year, five years, and ten years? Personal goals, couple goals, and family goals.
There are several categories you should be setting goals for. Again, this might look different for different families, but here are some ideas.
- Beginner emergency fund ($1,000)
- Debt payoff
- 3 month expenses emergency fund
Think short term and long term goals here. Then categorize your goals into one year, five year, and ten year goals. This will help create a timeline and make it easier to prioritize when you incorporate your goals into your budget.
Under each goal, write action steps necessary to take in order to reach those goals. Here is an example. Let’s say we would like to save $10,000 to purchase a used car in five years.
Option 1: Work backwards. With this option you are more likely going to have to push yourself and find ways to supplement your income. For this option we would take $10,000 and divide it by 60 months (five years) and that gives us about $167/mo. This is how much per month we need to be putting into savings each month to reach this goal.
Option 2: Work with what you have and work from there. With this option you can take what “extra” income you have (the positive difference between your income and expenses each month) and decide what goals to put that money towards.
For our example we could say that we have an extra $150 each month we would like to put towards a car. We would then take our goal of $10,000 and divide that by $150. We would get 66.6 which means it will take us about 66 ½ months of saving $150 to reach our goal of $10,000 saved.
It is SO important to put the action steps with each goal! If you don’t have a plan to achieve your goals, then it’s just a daydream.
6.Minimize Your Spending
Now it’s time to start cutting out the extras and get down to business.
You now know how much money you have to work with and chances are it is not enough! The fastest way to make room in your budget is to minimize your spending. It is a lot easier to cut something that you are probably already over spending on then to go find a second job.
Look through your spending categories from step 3 and see what areas you can cut back. Are you able to get any of your monthly bills reduced or completely eliminated?
You don’t really have to have cable and maybe you can get a better rate with your cell phone provider!
Look at every single dollar you spend and find ways to minimize that spending! Even if it’s only $10 saved, it’s worth it! It will all add up!
Probably the most common room for improvement for most people is their food spending. That included everything from daily trips to the grocery store to eating fast food.
You can read this post on how meal planning saves our family THOUSANDS of dollars each year! This is not an exaggeration! What goals and dreams could you start achieving with a couple extra thousand dollars a year?
7. Set Your Budget
Yes I realize that we are all the way on step 7 and only now starting to set a budget. But that is what is going to make this budget the last time you start a budget! Most people just throw numbers on a paper and wonder why their budget keeps failing. Not you! Not this time!
The most successful way our family has found to set a budget is to allocate every single dollar of every single paycheck. This is sometimes referred to as a “zero based budget”.
What that means is that before every single paycheck, we have spend every single dollar on paper. Each penny has already been assigned a job.
In order to do this, you are going to need something to keep track of your budget. Pen and paper are a classic way that works great, but our family has always used a simple excel spreadsheet.
If you are looking for a FREE tool, I have put together a Budgeting Starter Kit that includes both a free printable and the exact excel spreadsheet that our family has been using. You can get that free toolkit by signing up below.
When thinking about what to include in your budget, your goals are going to play a huge part in this step. They will determine where you prioritize spending your money.
Start your budget by writing out your new list of monthly expenses and your new list on monthly spending categories and don’t forget to include any goals you are going to be working towards!
Now let’s go back to the “when” you get paid. Split your bills and expenses up per paycheck depending on when they are due. An example would be, if you have a bill that is due on the 25th of each month, pay that bill with the first paycheck of every month.
See if you can split your expenses so you are paying half at the beginning of the month and the other half with your second paycheck of the month.
If you get paid every other week, base your budget off getting paid only two paychecks each month. On those lucky months where you get a third paycheck, you will have “extra” money to put towards your goals!
If you get paid monthly, then all your monthly bills will be paid with that single paycheck.
Make sure to check out my monthly Family Budget Updates so you can have a better idea of how to separate your bills.
If you have annual bills or expenses, split that amount over the 12 months and put that money in savings. That way when the bill becomes due, you already have the money set aside ready to go.
Because we are setting up your budget with an average paycheck as your base, if there are months where you make more than you have planned, put that money into savings to cover the months when you make less than planned.
8. How to Stay Within Your Budget
Set yourself up with a system that will help you stick to your budget every single month. No one is perfect at this, but the more prepared you are, the less likely you are to go over budget.
You can read more details about how we run a cash envelope system here but let me just tell you, that it has been a game changer! When the cash is gone, we are done spending. There is no other option!
Meal planning… oh how I love my meal plans! They relieve stress. They save me time. They save my sanity!
One of the top categories that people overspend on is food. Meal planning can help you to thoughtlessly stick within your budget every month!
You can read here all about how our family plans out our meals and sticks under a $400 monthly budget for our family of 5.
Are you ready to start spending your money on what you value most?
I hope that this beginners guide to setting a budget was helpful for you! Was there anything I left out? Do you have any questions? Let me know in the comments below and I would be happy to help where I can!
Thanks for stopping in and I will talk to you soon! xoxo