In my first “How Do I Start a Budget?” post, we started out with the most basic way to start keeping track of your money, which is to write down every single expense for 30 days. This helps you start to get a feel for how you spend your money, and may end up surprising you a little once you sit down and take a look at 30 days worth of spending.
So did you do it?
Were you able to start that new habit or did you chicken out?
Ok, don’t worry, take a chill pill. Just go back and read the first post. Start now and don’t put it off.
It’s not that hard, you can do it.
So… now for those suck ups that actually did start their assignment from last week. It’s time to learn the next step. Of course, it hasn’t been 30 days since previous post, so keep logging your expenses, and after 30 days you can move on to the step I’m going to explain now.
“In the house of the wise are stores of choice food and oil, but a foolish man devours all he has.”- Proverbs 21:20
At this point in the game it’s time to put together a full-fledged Monthly Spending Plan (otherwise known as a budget).
The best way to do that is to use premade forms I provide as a free download, or you can use computer based budgeting software. I personally prefer filling out premade forms because I tend to get messy with my plan. I like to make notes, cross out, erase, etc until everything works. If you have an income that varies quite a bit from month to month, you should read this post and download these forms.
So now it’s time to gather your bills together along with your notebook filled with 30 days of logging your expenses, and fill out your plan forms as best you can.
YOU WILL NOT GET IT RIGHT THE FIRST TIME!
Take another chill pill.
In fact you won’t get it right the first few times you do it, and that’s ok. The more you do it, the more you’ll get it.
So let’s continue… I like to do what’s called a “zero based” budget which means your budget is equal to your monthly take home pay. For instance, if your take home pay is $4,000 for the month, then all the line items in your plan should come out to $4,000. A zero base plan ensures that you don’t spend more than you make, and it works whether you make $100 or $100,000 a month.
There are line items for anything you might think of to allocate your money to: from savings to insurance, to groceries, gas, and cosmetics. Everything you spend money on should be included somewhere in the plan. You should even include some discretionary money that you can use for whatever you like during the month like a Starbucks treat or a really good sale at the shoe store.
Also, if you pay a bill only every six months (say $600 for car insurance) then you will need to put back $100 per month in that category so you won’t be “surprised” when the bill arrives and you won’t have to scramble to get the bill paid, because you will be prepared when the bill comes.
So now that you have a written plan in place, how do you spend the money?
Here’s what I do.
I pay all the bills electronically through my bank, and check those off my spending plan. Then I write checks for the things I don’t pay for electronically (such as our tithe). The rest of the money is withdrawn from the bank and distributed to various envelopes (such as groceries, restaurants, clothing, haircut, etc.) to use throughout the month.
You could also use websites such as Mint.com or virtual envelope apps (there are several) on your smartphone that link to your bank account and divvy up the money electronically, whatever works for you.
You then spend money from each category out of your envelopes (whether physical or virtual), but when an envelope runs dry, you don’t spend any more on that category, so you have to make sure to make it last. If you spend all your restaurant money in the first two weeks, you’ll be eating at home for the rest of the month.
Why do this?
When you have a plan and work your plan, you are developing the self control that keeps your money situation from getting out of hand so you don’t end up spending more than you make,
and when you are able to start spending less than you make, that’s the first step toward getting ahead financially.
So go ahead, quit dilly-dallying around and get started, your bank account will thank you!