I think we all have to get to that place where we get sick and tired of being sick and tired of our finances being out of control. When I got there, I realized I wasn’t even close to being on track of becoming financially free. The budgeting apps I was using were getting super unorganized and my spending habits were literally all over the place. I got paid on Friday and was already dreading paying bills and credit cards. I felt like this is the worst part of adulting by far. The crazy part is that getting my finances on track didn’t benefit anyone but myself. So, I had to make a positive change about how I carried myself financially, to attract the type of lifestyle I truly wanted.
When I started my path towards financial freedom, well at least financial stability, I knew my first to-do was my budget. You may find it difficult to either start your budget or simply stick to it. For me, figuring out my WHY was even harder than both of those. You have to ask yourself, “Why do I want to get my finances on track? Do I really want to feel controlled by money? Or am I okay with living paycheck to paycheck? What kind of lifestyle is that and how is it going to affect me in the future?” Not taking control of my finances definitely affects me, my husband, and my two beautiful babies. I don’t want to be the downfall of my family’s economic situation. I want to be the superwoman in the family who puts out fires, not start them. This brought me lots of perspective on why I wanted to make healthy financial choices a normal habit moving forward.
So here is what works for me and my family when it comes to budgeting. I have learned to use a little bit of everything to get the job done. I currently use Mint to see a big picture of my finances. This includes seeing all of our bank accounts, my husband’s business accounts, our retirement accounts, credit cards, and loans. I also use a Google Sheets, this is like an Excel spreadsheet, to keep everything organized and easily update my budget as needed. I share the sheet with my husband, so we can both edit our budget and keep each other accountable. I also, personally love writing everything down in my notebook. I usually write down all of our financial goals and strategize on how to achieve them. This is definitely a visual thing to keep me motivated and accountable.
Remember your budget is your go-to guide to helping you saving money and hit your financial goals. You want to review your budget 2-3 times a week to make sure that all expenses are accounted for. I usually review my budget at least on Saturday mornings. Creating a budgeting routine will help keep you on track on a weekly basis. Start by picking a specific time and days that you can dedicate 15-20 minutes to update your budget. By doing this you will always know if you are hitting your financial goals or if you have to push your time frame further out.
The next thing you want to do is start collecting all of your expenses to get a good average for your budget. The best way to do this is to go online and open up your bank and credit card statement for your previous 3 months. Take a look at what you are spending your money on and how much you are spending on these items. A good method is to review your budget and financial goals every 3 months to make sure you are still on track and not pushing your goals out too far out.
Now here are the 5 simple budgeting categories you need to add to your Excel spreadsheet or your financial planner.
For the income section simply add all of your net income (after tax) money including any side hustle money for the month. For those who get paid a salary, this will literally be your paycheck. For those who get paid hourly or are entrepreneurs, whose work weeks may vary, you want to get a good 3 month average of your monthly income.
Here is a quick example:
Month #1: $1,800 + Month #2: $1,600 + Month #3: $1,650 = $5,050/3 = $1,683 Monthly Average
Bills are going to be all of the mandatory fixed expenses that you have to pay, even if you lose your job or main source of income. This will be your emergency funds monthly base and your minimum cost of living. I personally do include groceries because I don’t plan on going hungry if my financial situation changes.
- Cell phone
- Car payment
- Car/Renters/Home Insurance
- Life Insurance
- Credit Card Minimum
- Loan Payment Minimum
At this point, you want to add up all of your bills and fixed expenses and subtract them from your income. If your bills are greater than your income then you are living above your means. If your bills are less than your income then you have some wiggle room for the next section of your budget.
Your Variable Expenses are the items you can live without if you lose your income. This would be personal care, cable/Hulu/Netflix, entertainment, and play money (restaurant, clothes, alcohol). You still should have a budget for these items, but keep a close eye on these expenses as these are the categories we love to spend money on. An aggressive strategy will be to cut these items out of your budget to achieve your financial goals faster. A more conservative strategy will be to cut 25%- 50% out of each of these categories and to keep cutting them until you hit your goals.
Check Point #2
At this point, you want to add your bills and variable expense to get your total cost of living. If your total cost of living is greater than or equal to your income then you are either getting into debt or blocking your opportunity to save. If your total cost of living in less than your income then you have some breathing room for the next step of your budget.
Making smart financial goals is your main priority. Your first goal is your emergency fund, which should be about 3x-6x your fixed expenses. To achieve this goal start by saving $1,000. Then continue adding to this fund until you reach at least 1 month of your total fixed expenses. Your second goal should be paying off all debt, this is your credit cards and student loans. Until you are out of the debt repayment stage you should definitely not be focusing on any other goals. After the debt stage, you can focus on your short and long-term goals like retirement, savings for a home, paying off your car, etc.
A good goal setting technique is to note how much you want to contribute to each of these goals and how much you have already contributed. This way you can keep track of how far or close you are from actually achieving your goals. I would also recommend putting a due date of when you want to accomplish these goals.
- Emergency Fund
- Pay off Debt
- Short-term goals
- Long-term goals
You can take a conservative or aggressive approach to my budgeting style. Just keep in mind that you are just maintaining your current lifestyle not maximizing it if you choose to go super conservative. Funding a little bit of everything didn’t work for me. My family and I saw big results by hitting one goal at a time and getting out of debt first.