When I was a young child, I used to wonder where words came from.
I imagined that maybe long ago, a group of men gathered around a table, tossing out ideas for words.
When they came up with one they liked, they checked it off and moved on to another. Eventually, I supposed they came up with the entire English language. (Oh, the mind of a child!)
Fast forward to my adult life.
When I hear the word “budget”, I believe the men around the table must have been grumpy the day they came up with that one! I mean, the mere sound of the word kind of grates, don’t you think?
To this day, I just don’t like that word!
But call it what you want, setting up a simple budget is a necessary and valuable tool to enable you to control your money, instead of your money controlling you.
Credit Cards and Debt
I have always hated credit cards and the debt associated with them. Saving money is something I enjoy, along with the security I feel from a solid savings account. I like the peace that comes from stewarding money well and having it in order.
But when you’re raising a family, life happens, right? If you’re not careful, the money can quickly get out of control. Through the years of raising our children, I did not always stick to a budget.
And debt happened.
We made mistakes that added to the financial strain. But I have learned that if you want to control your money and be a good steward of it, having a budget is not optional; it is necessary.
The good news is, setting up a budget does not have to be difficult.
I am not a fan of fancy financial terms. I want something simple and easy to understand. Something I can really wrap my brain around.
In this blog post, I want to show you 5 beginner steps to a simple budget. Maybe you hate to budget, or perhaps you have failed at sticking to a budget in the past.
Don’t give up!
If your money is controlling you, it is worth trying again until you find what works for you. Here are the basics to get you back in control.
Grab a pencil and some paper!
Or better yet, download my free Budget Notebook to make it easy to set up a simple budget.
It will be sent to your inbox immediately. Then come back here and let’s get started. Don’t worry, I’ll wait for you!
Ok, ready? Here we go!
5 Beginner Steps to a Simple Budget
1. Know your income.
If a financial planner asked you how much money you bring home each month, could you quickly answer that question? Or would you need to take the time to figure it out? This is your starting point.
If you have any irregular income, include the minimum amount you think you will make and add that in. Once you have figured your total monthly take-home income, write it down on paper.
2. Know your expenses.
a) Fixed expenses. These are the expenses that remain the same, or almost the same, every month. Examples are mortgage, phone, electric, car payment, etc. Include all monthly debt payments as well. All of these are easy to predict and due every month, so that’s why you should start here.
List these expenses one by one on paper, along with the monthly payment of each one.
b) Variable expenses. These are the expenses that have potential to change every month. They are not bills that are “due” each month. Some of them are areas where you can effectively cut back if necessary.
Examples are groceries, dining out, clothing, entertainment, etc. Others are more difficult to predict, but you still must be prepared for them, such as when the car breaks down.
What if you don’t know how much to write down?
If you have no clue how much to write down for some of these expenses, whether fixed or variable, there are some things you can do to help figure it out.
- For bills you pay online, like electricity or water, log in to your online account and click “Payment History”. Find an average of your last 3 months and use that. Or, go back to one year ago and use that number. For instance, if it’s April, use last year’s April payment for electricity. Either way will give you a pretty good estimate.
- For things like groceries, gasoline, or entertainment, go through your bank statements from previous months (easy to do online). For example, add up all the grocery store amounts through the previous month and use that number.
List these expenses one by one on paper, along with the monthly amount.
Now add all of your expenses together, fixed and variable.
Write down your total for expenses.
(Don’t worry. This step gets so much easier from now on! Because you will be tracking your expenses and will easily have a record to refer to next month).
Oh, and another thing… this does not have to be perfect yet! We are taking baby steps in the right direction here and you will get better at it each month.
Ok, so here is what we have so far:
- Your total monthly income written down in Step 1. Check!
- Your total monthly expenses written down in Step 2. Check!
You’re doing great! Let’s keep going!
3. Know if you have enough income to cover your expenses.
Here is the question you must now answer:
Do you have enough income to cover your expenses?
If the answer is yes, great!
If the answer is no, go back through your expenses and cut back everywhere you see an opportunity.
You must take the time that is necessary to find ways to cut back, such as a better rate on wireless or TV, or cutting out unplanned fast food trips. Try to find more ways to save on groceries. Cut back until your current income covers all of your expenses, preferably with some money left over.
After cutting back, what if there still isn’t enough income to cover expenses?
If you have cut back everywhere you know to cut back, and if your income still does not cover your expenses, the hard truth is that you must find a way to earn extra income.
Believe me, I have been in this situation more than once. This is why I started earning money from home. Here are several of the ways I have earned money from home:
- Selling our used stuff on eBay and Craigslist.
- Joining HP Instant Ink to save money on printing.
- Teaching piano lessons.
- Teaching English online with VIPKID.
- Blogging (my favorite!)
Even though this step can be time-consuming, it is vital!
If you don’t know your expenses, and whether or not your income will cover them, there is a good chance your money is controlling you.
So schedule a small block of time each day to get this all worked out, no matter how long it takes.
Related: How to Save Money on Printer Ink
4. Know what you’re saving for.
If you know at all times what you’re saving for, you will be much more motivated to stick to your budget. Why? Because before you drive through that fast food line, make an impulse purchase at the mall, or put off your meal planning, you will remember that every month your savings is growing!
The best way to save is to open some extra accounts at your bank. At first, you may only be able to add one extra account. That’s fine!
And you may even decide that’s all you need. (Some people like having one savings account). Whether you have one or several, the point is to save and to know what you’re saving for.
Why is this important? Well, when expenses like these happen, they can really wreck a budget.
So expect the unexpected, and start saving today!
Here are some ideas to get you started.
Sample Savings Funds
- Emergency Fund. For real emergencies, like job loss.
- Auto Repair Fund. Because automobiles need maintenance and repairs, but not necessarily every month.
- Home Maintenance Fund. Because stuff breaks around the house.
- Christmas Fund. You’ll be prepared and better able to purchase gifts.
- Vacation Fund. Determine how much you need to set aside each month to pay for that summer vacation. If your money is out of control, then consider skipping the family vacation this year until you get your money under control. There are many creative ways to have inexpensive fun with your family without going on an expensive vacation. Don’t worry. You won’t be depriving your children!
- Something You’d Really Like to Buy Fund. This is a fun one! It really motivates me to stick to my budget. You can bet that when I am at the mall faced with an impulse buy, all I have to do is think of that camper we would love to buy someday. After that, I have no problem skipping the purchase.
- College Fund. Because college is coming. For us, it’s here now. In fact, we have 2 in college. And it’s not cheap. But don’t sweat it. Just save what you can and the fund will grow over time. You’ll be glad you did when college rolls around, because every little bit helps.
If you feel you don’t have any extra money to add to these types of accounts, try your best to get in the habit of setting aside even a minimum. Seriously, like even $5 a month in one extra fund if that’s all you’ve got. Once you’re in the savings habit, you will be motivated to find ways to make it grow.
5. Check in daily to track expenses.
Once a day, do a quick check-in to your online banking. Keep a running list of where your money is being spent.
The key is to check it daily, and it won’t pile up on you.
If you let a week go by without even thinking about it, you won’t even remember where you left off. And you might be scared to look. So get into the daily habit.
Another option is to use cash envelopes. If you’ve never tried cash envelopes, here’s a quick how-to:
a) Simply create an envelope for each expense in your “variable expenses” category. Label each envelope.
b) Go to the bank and withdraw enough cash for each envelope based on the amounts you wrote down in Step 2.
c) When the money in each envelope is spent, it’s gone, and you know you have reached your limit for that monthly expense. If you use cash envelopes, you won’t have to worry about checking your account as often.
Either method you choose, this is how you control your money.
YOU CAN DO IT!
Even though the word “budget” might sound intimidating, it doesn’t have to be difficult. It is a skill you can master with time and practice.
Don’t delay with starting these beginner steps to a simple budget. Know your income, know your expenses, know if you have enough income for your expenses, know what you’re saving for, and check-in daily to track expenses. You won’t regret it!
Are You Serious About Gaining Control of Your Money?
If you are serious and you want to dive deeper than even these steps, I highly recommend Jessi Fearon’s excellent course “Real Life Money Plan”. You will learn in depth about using cash envelopes and killing the debt monster. I have personally been through her course myself. Jessi is passionate about helping people gain control over their finances, and her affordable course is worth the investment to move toward financial freedom. After all, financial freedom is part of the abundant life!
P.S. Another valuable resource that has helped me is the best money book ever! Be sure to check your local library first! It’s called The Total Money Makeover by Dave Ramsey. You can read more about this book on my blog post here.
YOUR TURN: What are your budget struggles? What keeps you from sticking to a budget? What helps you stick to your budget? I would love to hear from you! Please share in the comments below, or email me at firstname.lastname@example.org.
God’s blessings to you,