Budget 201: Get in Gear

Quick recap: In Part One of this three-part series we did an overview of why The Budget is so important (answer: stewardship), dispelled The Budget’s nasty reputation, and identified what The Budget actually is.  We also laid out a few action steps.  I’d love to know if any of you decided to track your spending and expenses, took a hard look at any debt, or defined some goals!

Assuming that you did one or more of those things, now is the time to put your newfound information to good use.  This month is the first month of the rest of your financial life!  This month you’re going to bring a brand new baby budget into the world.  You’re going to nurture and teach it, raise it up and over time it will become a fully functioning adult budget of which you will be most proud.  So let’s get started!

Analyze as a team

Last month you tracked all of your bills and spending.  Now it’s time to categorize and analyze those numbers.  If you’re married, do this with your spouse.  If you’re not, find someone who will frankly discuss money with you, is good at math, will tell you when you’re being an idiot, and will high-five you when you’ve nailed it.  Basically, get the right person in your corner.

• Expenses.  AKA your bills: rent, gas, phone, internet, insurance, student loans etc.  Know how much they are, when they’re due, and if they’re necessary (i.e. rent is required, Hulu not so much).  If you pay car insurance every six months, take that biannual bill, divide by 6 and set that amount aside on a monthly basis so you don’t have a panic attack every January and July.
• Spending habits.  Categorize your receipts into things like grocery, restaurant, gasoline, fun (or whatever areas apply to you) and add them up.  What did you learn about yourself?  When Mason and I did this, we discovered that I leak money into wine and coffee shops, and he can’t resist gas station snacks.  Combined we’re talking about at least $150 a month that wandered away with little to show for it.  This was something we decided to change.  Determine whether what you’re spending is appropriate, or if you’d like to try to increase or decrease in specific areas.
• Financial goals.  Where do you want to focus your financial energy?  Would a $1000 emergency force you to use a credit card?  Is Sallie Mae loitering in your living room?  Does Visa have your cell number?  Define your primary goal, and use all available dollars to achieve it as quickly as possible.  This could also be a vacation, new furniture, or buying a home.  You choose.  As Mason says, “The Budget’s not the boss of me, I’m the boss of it!”

Build your first month’s budget

Now that you’ve analyzed the big picture, it’s time to sketch out your first zero-based budget.  There are lots of ways to do this: pen and paper, Excel spreadsheets, an app, whatever medium works best for you.  If you’re the hard copy type, I highly recommend using Dave Ramsey’s budget forms.  They are clear and easy to use, and have categories that may have slipped your mind (haircuts and Christmas gifts anyone?).  EveryDollar is my favorite free online tool, and they also have a great app.  The site does all the math for you, aligns with Dave Ramsey’s 7 Baby Steps, and is highly customizable.

Here are some suggestions to keep in mind as you go:

• Pay yourself first.  Tithe and put money into savings right off the top.  If you wait until the end, this won’t happen.  Pay your bills next.
• Prioritize your goals.  Whatever you’re striving toward, make this your next priority.  Set a minimum monthly contribution, and see if you can exceed it if possible.
• Make envelopes.  Some people do great using their debit card for everything, but I just can’t keep track of what I’ve spent where using plastic.  We literally have paper envelopes with cash dollar bills in them for things like groceries, restaurants, clothes, and entertainment.  When the envelope is empty, we’re done spending in those areas for the month.  This makes us much more intentional about how we use our money.
• Prepare for surprises.  Your car is going to leak.  The air conditioner will go out.  Avery will need stitches this summer.  Set a little bit aside each month for inevitable surprises so that when they happen, you’ve got the cash to cover it.  This prevents going into debt, eliminates money sweats, and gives peace of mind.

Plan for course correction

As with any new discipline, The Budget will not be perfect the first time you try it.  There will be hiccups and mistakes, and honestly the first month is at least 40% guesswork.  And that’s okay!  Take these things in stride and make adjustments for next month.  Give yourself 3-4 months of practice, and the waters will start to calm.

• Keep notes.  As you learn what works and what doesn’t, keep reminders to help you recall what needs tweaking for the next month.
• Make changes.  Take what you’ve learned, and make the necessary adjustments for next month.  Did you give yourself $400 for groceries and you really need $500?  Did you set aside $100 of entertainment money and you can have just as much fun for $70?  Give it a try, see where it takes you.
• Give grace.  Your spouse isn’t perfect.  Neither are you.  This is new and everyone’s learning how to do it well.  Don’t beat yourself up if the cookie didn’t crumble the way you planned, and don’t bury your beloved husband in the backyard for contributing to the downfall.  You can work it out.

Okay, this is a huge project to tackle, but you can absolutely handle it.  You have a great partner in your corner, some wonderful resources at your disposal, and a cheering section that consists of at least me!  Remember that nothing is flawless the first time, but you should be proud of yourself for taking this huge step toward financial wellness.  Check out Part Three to find out how you move from a novice budgeteer to a confident, habitual budget maker!

Drop a comment with your financial goals- I want to celebrate with you as you achieve them!