In my first “How Do I Start a Budget ?” post, we started out with the most basic way to start using a budget to keep track of your money, which is to write down every single expense for 30 days. Doing this helps you get a feel for how you manage your money, and may end up surprising you 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?
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.
The Next Step To Making a Budget
So… for those suck ups that did start their assignment from last week, it’s time to learn the next step. Of course, it hasn’t been 30 days since the previous post, so keep logging your expenses. Then after 30 days, move on to the step I’m going to explain next.
“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 the forms I provide as a free download, or you can use computer based budgeting software. I personally prefer filling out printed forms because I tend to get messy with my budget.
I like to make notes, cross out, erase, etc. until everything works smoothly. If you have an income that varies from month to month, then read this post and download these forms to help make a budget for a variable income
Your Plan Won't Be Perfect The First Time
Now it’s time to gather your bills together along with your notebook filled with 30 days of written 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 based plan ensures that you don’t spend more than you make. The great thing about a zero based budget is that it works whether you make $100 or $100,000 a month.
Budget for Everything
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, and to cover some expenses that just can't be anticipated.
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 as cash in an envelope or a separate bank account so you won’t be “surprised” when the bill arrives and you won’t have to scramble to get the bill paid. Doing it this way means you'll be prepared when the bill comes.
Now Spend The Money
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 (with labels 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.
Self Control Is The Key
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, save lots of money, and keep you from spending more than you make,
So go ahead, quit dilly-dallying around and get started, your bank account will thank you!
Update: My new book “Balance- The Quick and Easy Guide to Financial Stability Using a Budget” is now available. You can check it out here.