Here it is! Part II of my Planning Your Financial Future Series: Making a Budget. This is a topic near and dear to my heart. Amazing things can happen when you follow a budget, become accountable for your spending and start saving for your future. First, did you do your homework? I hope you sat down to look at where you are now, financially, and where you want to be in the next few years.
Dave Ramsey has taught me loads about how to end up debt free, but I’m not to the extreme he is. Dave Ramsey lives to the extreme of ALWAYS paying cash and not even having a credit score. Do I fuss much over my credit score? No. I check my free credit reports yearly to make sure all that is being reported is accurate, but I also don’t completely condemn lines of credit. I’m not saying to let things go to collections because your credit score doesn’t matter, but the system is rigged. Seriously, paying off a loan AND paying it off early hurts your credit score. Credit scores are not the be all end all.
For instance, I like Amazon.com. I like Amazon.com A LOT!! When we needed a new computer, we found a great deal on Amazon. The computer was a previous model and reduced to half off, it was tax-free weekend in our state and they were running a promotion to receive a $50 Amazon gift card instantly on approval if you applied for their credit card, plus 3% cash back on all purchases. So we applied. We got the computer, brand new, for $250 and earned $7.50 to spend later. A much better deal than we could find in a brick & mortar store without having to fight the crowds on tax-free weekend. The “catch”? We pay it off immediately. Always. Especially store cards, which have horrid interest rates, but the cash back allows us to save up points all year by buying items we would purchase anyway, to help buy Christmas gifts.
Let’s set up a budget now, shall we?
First, write down all of your planned monthly income. This is your regular income that doesn’t change too much from month to month. (Example: My husband works at a job where he makes salary plus commission. We NEVER budget for commission. Why? Because then what do you do when you are short on income because you didn’t make or made less commission than budgeted for?)
Next, use this handy Monthly Budget Planner I created to write down your fixed expenses. Fixed expenses are what have a specific due date. Examples include rent or mortgage payments, car payments, cable, internet, cell phone and utilities. Write down all of the expenses. If you can’t remember, check your online banking to refresh your memory.
This is the perfect time to evaluate your fixed expenses. Sit down with your spouse to see where your money is going. Are you spending over $200 on cable and internet? STOP! Please check out my post on Cutting the Cable for ways to watch what you want when you want for so much less! What about those really cool subscription boxes…? A little more than you realized, eh? When my husband and I first started dating he realized he was spending $1,300/year on Starbucks. Eek! Buy a Keurig instead. For a while he even used a milk frother and flavored syrups to mimic the latte’s he bought. Or maybe once you are looking at all your expenses written out you realize you haven’t used that Netflix DVD subscription that’s costing you $13/month for the last 2 months. Oops! That was a tank of gas… See if there are items you can cut to reduce your spending.
How do you account for your yearly Prime subscription? Or car insurance payment every 6-months? These items go into irregular expenses. Total up your yearly irregular expenses and divide by 12 months. Budget that amount each month to have the money available when you need it.
Finally, list out all of your budget categories. By looking at the last 2-3 months spending on your online banking estimate your budgets for grocery, gas/transportation and miscellaneous. You’ve probably noticed the personal money category listed. This is NOT a marriage advice blog, but here is some marriage advice anyway. HAVE PERSONAL MONEY! Seriously, even if it is just $25 each for you and your spouse, do it! Those arguments about “Did you really need to spend $2.56 at the gas station on an energy drink?” are gone. Make rules about what requires the use of personal money and follow them. Sometimes at work, I really need to sneak down to the cafeteria for a piece of cake… personal money, baby! No need to feel guilty or have to justify why I spent money in the cafeteria.
Everything filled out? All of your expenses accounted for? Now subtract your expenses from your income. Looking good? Or maybe not… Go back and revisit your expenses and budget as often as necessary. If you are coming in under budget in one category month after month, its probably too much. The money remaining after your budget should go towards paying off debt. If you are committed to paying off your debt that means that money gets prioritized for debt pay off over anything else. It’s up to you to make your financial dreams reality!
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