What would happen if you had a family emergency? How would you pay your bills if you lost your job or got sick? Could you cover an unexpected expense without having to borrow money?
Last month I shared the first step to financial freedom – track where your money is going. Today I’m going to show you how you can take back control by deciding where your money will go with a budget.
If a budget doesn’t sound like fun to you, you’re in good company. In this post, I share ideas from both the geeky Excel loving saver and the free-spirited spender. No matter which way you’re bent, you can find a technique that works for you and free yourself from financial worry.
Budgeting changed our lives!
My husband, Jer, and I have always been okay with money. We’ve never had credit card debt and started saving early. But I still felt stressed at the end of each month trying to balance it all. In 2011 we decided it was time for a change.
Then something amazing happened. We learned that when you become intentional in one area of your life, you will begin to see success in other areas. As we began making progress toward financial freedom, we became healthier, built better relationships, changed careers, and grew to become better people.
Budgeting also turned us on to new hobbies and interests. To save money on food, we started gardening. In lieu of dining out, we became great cooks. Looking to save money on travel we became avid campers. While searching for free activities to do together we became passionate about cycling. By cutting our TV and entertainment budget, we read more books. And by working on and achieving goals together, we became closer in our marriage.
What is A Budget?
There’s one thing you need to do to build wealth and find financial freedom. Spend less than you make. To do that, you need a budget. Whether you’re making $30,000 per year or $300,000, YOU NEED A BUDGET!Whether you’re making $30,000 per year or $300,000, YOU NEED A BUDGET! Click To Tweet
To put it simply, a budget is deciding what will happen with your money before you get it. You become the boss of your income by creating a plan for what you want your money to do.
There are basically three things you can do with money. You can spend it, save it, or give it. A balanced financial plan will allow you to do all three.
Pay Yourself First
Actually, you should cover your needs first. This includes food, water, shelter, clothing, and work-related expenses. If you have enough money to cover your needs and then some, follow this rule and pay yourself first.
These are the first items on our budget and have been since the beginning. Paying yourself first means allocating money for your future. This can include an emergency fund, retirement savings, debt payoff, or savings for cars, vacations and remodeling projects.
In my opinion, once your basic needs are met, the next most important item on your budget is your future. If you agree, pay yourself first.
Share Your Good Fortune
The next section in my budget is charitable giving. Sharing your good fortune each month is a wonderful way to express gratitude for all that you’ve been blessed with. It’s not a requirement, but I think you’ll feel better when you give. If you’re new to giving, start small and ramp it up as you create more freedom in your budget.
Wants VS Needs
I wrote about wants and needs in the previous post, Your First Step to Financial Freedom. Needs are essentially the things you need to survive: food, shelter, utilities, and expenses to get you to work. When you’re creating your budget, plan your needs before your wants.
When budgeting wants, it’s important to prioritize. Don’t spend money on things that don’t bring joy to your life.
When we decided to pay off our mortgage as quickly as possible, we cut back on all of our wants. You know what we realized? Most of the things we were spending money on, we didn’t care about. Now we only spend money on things that are important to us and save the rest.Spend money on things that bring you joy! Click To Tweet
Things are going to pop up each month that you don’t plan for. Budget a little each month to cover these unexpected expenses. You’ll be more likely to stick to your budget if you have some leeway. Anything you don’t use can be put into savings at the end of the month.
How the Geeky Excel Loving Saver Does It
If you haven’t figured it out, I’m the geek and my husband is the free spirit. I use Excel because I like having access to detailed data for planning purposes. This is the format I’ve used since 2011. Feel free to take it and make it your own.
This is not for everyone. My husband, Jer, finds it overwhelming.
Most people don’t love Excel like I do and that’s okay. You still need to budget. In The First Step to Financial Freedom, I listed five apps that will do most of the work for you. A notebook and pen also work great!
Advice from the Free Spirited Spender
Since my husband and I are perfect opposites, I asked him what works best for him. He had some really great tips.
1 – Stay on Top of It
Save your receipts and compile them weekly, not monthly. You’ll be less apt to stay on top of it if you let them pile up. When you compile your spending weekly (or daily), you’ll realize how much money is spent frivolously. This is especially important if budgeting is new to you. Revisit your budget and monitor spending often.
2 – Prioritize
When you get paid, allocate money to pay your bills first. Then pay yourself second. Always keep an emergency fund and make it difficult to get to. You could set up a second bank account and pass on the convenience of an ATM card and checks.
3 – Cash it In
Jer suggests paying for everything in cash and limiting how much you have on you so that you don’t overspend. He also suggests carrying a credit card for emergencies, like car troubles. If you are a sucker for impulse purchases, I suggest forgoing the credit card.
4 – Ask for Help
We are all wired differently. Some people are naturally really good at this stuff. Ask these people to help you get started. Or you can hire a coach.
If you get help from a friend, take it seriously. They don’t expect you to be perfect. But they’ll be disappointed if they help you create a budget and see pictures of a new car on Instagram next week.
As much as Jer dislikes the details and tracking, he agrees that everyone needs to do it. He loves the benefits that budgeting has brought to his life. He enjoys less financial stress and more personal freedom.
A Couple More Tips
1 – Envelope System
If you’re a sucker for impulse spending, check out the Envelope System. The envelope system was made popular by Dave Ramsey in his book The Total Money Makeover. It’s a cash based system where you create an envelope for each budget item and put in the exact amount you budgeted. When it’s gone it’s gone.
2 – Automate
This tip is for everyone! I automate the crap outta everything. Our charitable giving comes out automatically each month. Our retirement savings is set up to automatically transfer each month. Every bill that can be paid automatically, is. Make it easier on yourself and automate.
Sticking With It
No matter how much you make or how much you have saved, you’ll always need a budget. Here are some tips to stick with it over the long haul.
1 – Don’t Give Up
It takes a while to learn this stuff. Even if you’re a super geek. You might screw up, and that’s fine. Make note of how far you’ve come and keep on keepin’ on.
2 – Learn to Say No
It’s not easy to tell ourselves no. Human beings are experts at justifying anything, so here’s a great tip.
WAIT! If you come across something that’s not in this month’s budget, make a note to add it next month. That cute dress will probably be on clearance next month anyway.
Get creative. If your entertainment budget is gone for the month when a friend asks you out for lunch, ask if you can schedule it for next month. Or offer to host a happy hour at your house. There are a million ways to have fun without spending money.
3 – Remember Your Why
Remember why you’re doing this in the first place. Maybe you’re sick and tired of worrying about making ends meet. Or perhaps one more money fight with your spouse will push you over the edge. If you have kids, maybe you want to lead by example so that they don’t have to suffer the way that you did.
Figure out why you want this and think about your why often.
4 – Believe
Believe that you have the discipline and persistence to do this. Believe that you deserve it. It’s up to you. In the words of Henry Ford, “Whether you think you can or think you can’t, you’re right.”
5 – Have Fun
Learning to budget and finding new ways to save money can be a lot of fun. Enlist some like-minded friends to join you on your journey. Find new ways to live life to the fullest without spending your life savings. If you treat budgeting like a burden, you won’t stick with it. Have fun and enjoy the journey.
Becoming the boss of your money will change your life and your future. You owe it to yourself to give it a try.
What are your best budgeting tips? Share in the comments below.
Need help creating a budget? Find out how I can help.