Did you know budgeting can be easy? In part one of this series I discussed why you need to budget and a little bit about my journey. Check out my prior post here.
I also introduced Dave Ramsey’s baby steps. (I am not affiliated with Dave Ramsey) As I mentioned before I do not follow his advice fully. Dave Ramsey is very opinionated (check out his YouTube channel) and feels his way is the only way to budget. There are many ways to budget, some work, some don’t. Budgeting does come down to how much self-control you have.
I’m not going to say that I’m perfect at budgeting I have had my slides, but I have been able to eliminate my debt and monitor my spending without Dave Ramsey’s methods.
Disclaimer: I am not a professional; I just have had years of experience creating and using budgets for my family. You may need to consult with a financial planner depending on your needs.
Key Ideas before creating your budget
Before you even start to budget you’ll need a plan. Dave Ramsey discusses not using any credit cards, cutting them up or destroying them. I do have credit cards, a few of them. In order to pay some of my utility bills they require credit cards for payment. I use mine more as a debit card. And I never carry a balance on the cards.
Another idea is to use cash only. This works great if you love to go out to the stores and shop. I don’t! Most of my shopping is on-line including my grocery shopping.
Shopping online saves me money, as I am not tempted to make impulse purchases. Whenever I do online shopping I have a specific purpose, I can comparison shop without wasting gas driving around to various stores. And I never make a quick purchase I put items in the shopping cart and will wait a day or two. If I still want them I make sure I have the money and then complete the transaction.
Ready to start
Once you are ready to create your budget you will want to collect bank statements, bills and any other information regarding bills or debts.
Review your bills are there any you need to get current on right now? Have you put $1000 away for an emergency fund? Review these first.
You can start your budget even if you don’t have $1000 set aside. As you budget you will find areas that you were spending money when you really could have saved.
As I created my most recent budget I went back a year to review all my spending, go back as far as you want.
Budgeting tools
There are many ways to record and review your budget. There are many apps available. I don’t recommend any of the ones that you have to pay for; it’s really not necessary. I am currently using two tools one is an excel download and the other is Dave Ramsey’s Everydollar app. They essentially do the same thing, but there are pluses and minuses to both.
The excel sheet has you just put in information, but you need to do your own totaling and there isn’t away to monitor exactly where you are doing the spending. I actually added another page to the sheet to record individual expenses.
I like that I can see exact income and expense. This occurs when I have an extra paycheck come in, it automatically adds this in. On the Everydollar app you can put the added income in, but it doesn’t add it to the total income.
I like the Everydollar app for setting up sinking funds. There is also a chart where you can review planned expenses, Spent and Remaining.
It doesn’t really matter what app you use to budget, so choose what works best for you.
Break down of categories
A big key to budgeting is telling your money where to go and not the other way around. You need to be in control of each expense.
When I created my budget I used the following categories, you may need to add additional categories depending on your needs.
Saving: Emergency fund, retirement, house repair expenses (this could be under housing if you prefer) etc.
Housing: Rent/Mortgage and Utilities
Transportation: Gas, maintenance, and licensing
Food: Groceries and dining out
Personal: Clothing, gym membership, haircuts, entertainment, personal products, etc.
Lifestyle: You could put gym memberships here if you prefer, I included vet expenses, and fun money
Health: Insurance, doctor/dentist expenses, medication
Insurance: Car and home insurance. Again you can include these under car and housing if you prefer, I just like to quickly see where the expense is.
Debt: This could be credit cards, medical bills, car payments anything that you owe.
How much should you spend?
Again there are many thoughts on how much to spend in each category of expenses. Most suggestions are pretty close in range.
Housing 35%
Utilities: 5% (I actually count this in my housing expense)
Food: 10-20%
Transportation: 12-20%
Clothing: 3-5%
Medical: 3-5%
Entertainment/ personal: 5-10%
Savings: 5-10%
Debt 5-15%
Reviewing your expenses from the previous year you can tell if you are over spending in any of the areas.
My Breakdown
To show how every family is a little different here is a break down of my expenses:
Housing: 28% (I add my utilities in this category, home insurance is part of my mortgage and additional mortgage payment)
Food: 19%
Transportation: 3%
Personal 17% (I have clothing, gym membership, entertainment, haircuts, personal supplies and cell phones in the category)
Medical: 2%
Lifestyle: 3% (This is vet expenses for 2 dogs, 1 cat, 2 birds and 1 rabbit, and fun money)
Insurance: 4%
Debt: 2%
Savings 23%
I’m pretty much in alignment with the suggested guidelines, although the food budget is the area I personally can see could use some improvement.
Now what?
If you have debt, see my previous article about the snowball effect for paying off these bills. This is a mental strategy for paying off debt. The key though is to pay off debt as quickly as you can.
I know some people that sold off things they weren’t using any more. Got side jobs and basically scrimped by to get out from under debt.
I can’t remember how I paid off all our debt, I just remember waking up one day deciding I wanted no more debt and worked on paying off all the bills.
Let me know how your budget journey is going?
