What is budgeting? Dave Ramsey says a budget is telling your money where to go instead of wondering where it went. Budgeting is the single best tool that we are using to get out of debt.
This one simple, straightforward technique has completely changed the way we think about and deal with money.
Why Make a Budget?
When I take cash to the mall “just to shop around,” it never feels like I’m spending a lot of money. I buy a pair of boots here, pick up a new shirt over there, maybe a belt or other accessory. The next time I look in my wallet, I usually have about $2.50 left. I think, “That’s not right…where did all my money go?” As I start to think back, I see where it all went – and how quickly it went there!
The same thing happens in my checking account the day after we get paid. We start spending money on things we “need,” and before we know it, it’s time to pay the water bill. If there’s not enough there, we start to panic…
There’s a better way to manage the money you’ve worked hard for. The key is the word “manage.” I’m not telling you not to spend your money. I’m saying spend it on the things you really want and need to spend it on, and make a plan to avoid spending it on the things that aren’t important.
So why should you have a household budget?
1. You decide where your money goes, instead of spending money “accidentally.”
2. You can be sure you can pay all the necessary bills before you start spending on “extras.”
3. You have a ready excuse not to do something you don’t want to do: “It’s not in the budget.”
4. You can enjoy choosing where to spend your money instead of feeling like the choice was out of your hands.
5. Excel makes it super-easy to have a pretty, color-coded budget spreadsheet.
Okay, so a couple of those weren’t the best reasons to budget…I’ll let you pick which ones were the good ones.
How Often to Budget
When I first heard about budgeting, I pictured a budget as a laminated booklet in Times New Roman font decreeing which expenditures were allowed and which were prohibited – a never-changing, unalterable edict that would sap all the fun out of my life. Now I make a budget each and every month. How did that drastic change happen?
When I realized that I could make a new budget every month it completely changed my perspective on budgeting. I may get paid a different amount this month than I did last month. Since it’s winter, we might have to use the heater more than we did in August (maybe – it is Texas, after all). An almost unlimited number of factors can be different from month to month (or week to week!). The freedom to make a new budget to account for those is freeing.
Because we have several paychecks coming in throughout the month, we make a monthly budget and then divided that into spending periods and list which bills and expenses should come out of each paycheck. This way when we get our larger paycheck, we can pay the bulk of our bills, and spread the smaller ones out over the other paychecks.
(You can download a copy of our budget here. Keep in mind that this is highly customized for our family and you may not need all of the categories. But it could serve as a good starting point for creating your own budget. You can also do a Google search for budget spreadsheets.)
Easy Ways to Budget
1. Make a list. When we first started budgeting, before we wrote any amounts down, we made a list of everything we KNEW we had to spend money on. (This wasn’t a wishlist, but it wasn’t a “we’re not spending any money” time for us, either, so there were a lot of things on that list – cable, dining out – that aren’t on our list now.) Especially when you have a limited income, it’s important to know what you have to spend money on, what you want to spend money on, and what you could spend money on if you had any leftover. (By the way, “spending” doesn’t always mean buying things. Right now, for example, we are spending our money on getting out of debt!)
2. Check it twice. (Sorry, I couldn’t resist.) After making the list, we prioritized. We knew we had to pay the house note. We had to have food. We had to pay the van note. And so on. By the time we got to the bottom of the list (and sometimes way before that), we were usually out of money. But we knew what we could spend and what we couldn’t.
3. Make sure it’s reality. Your budget needs to reflect what your month is actually going to look like, not what you wish it would look like. Don’t cut everything out of your budget completely, and then blow it because it wasn’t realistic. Don’t try to put everything in your budget either, and then get frustrated because you can’t make it work. It needs to reflect real life – even when “real” isn’t what you want it to be. You’re getting there, so give yourself some time.
4. Expect your budget to fail. If you’ve ever played a musical instrument, you know the chances of sightreading a piece perfectly the first time are slim to none. Budgeting takes practice, like everything else. So if you don’t get it right the first time, give yourself a break. If you don’t get it right the second time, or the third, or the eighth, it’s ok. Just keeping working at it and, eventually, you will get it.
The Right Way to Budget
So what’s the Right Way to Budget? The way you’ll actually use. Period.
If you’re not a fancy person, you won’t need a fancy budget. If you get paid six times a month, your budget will look different from mine. If you decide to budget every other month because that works better for you, then go for it. No one is grading your budget; you don’t have to turn it in. Just pick the way that works for you and get on it!
So what do you think? If you don’t have a budget, have I convinced you to make one? If you already have a budget, share some of your budgeting tips with us!