Budgeting
5 Easy Steps to Budgeting – Step 1
One of the most common questions I get asked is, “how do I budget?” Many people have tried budgets…and failed! That leaves people frustrated and in turn they say they will NEVER use a budget again. Here are some things people equate with budgets:
Budget = Restricting
Budget = I’m Broke
Budget = Controlling
Budget = No Fun
Budget = Not worth it
I would ask them the following:
- How are you paying for Christmas this year? I am paying cash.
- How much is your car payment? I paid cash for my car.
- How much did you invest this month? I have invested for retirement for over 220 months in a row and my daughter’s college for over 150 months in a row.
- How much money do you owe to your credit cards right now? I owe $0.
- When is the last time you had a great discussion on finances with your spouse? Not a fight. A great discussion. Jenn and I develop a spending plan TOGETHER every single month.
Well I want to make a deal with you. Will you give budgeting one more shot? I’m going to do my best in this series to try and teach you a method of budgeting that works. A method I used and still use today. My hope is you will try a budget for the month of March.
In reality, a budget is nothing more than telling your money where to go. I have heard Dave Ramsey take the definition a humorous step further – a budget is nothing more than telling your money where to go instead of wondering where it went! EXACTLY!
So our first step in budgeting is:
STEP ONE Decide to decide
Until you decide that budgeting is crucial to taking your finances to the next level, you will always find a way to avoid this “unsavory” task. The very day that Jenn and I started budgeting was the very day that we started WINNING WITH MONEY! From this moment on, decide to live differently. Decide to not live paycheck-to-paycheck and in debt.
Decide to decide!
Make sure to check back for Step Two on Thursday!
Kids and Money Tip: No Spending Until You Prepare A Budget
Money is a foreign concept to most children until they are about 4 or 5 years old. It is at around this age they become aware that money has the ability to purchase things. However, most of their financial knowledge is focused on spending because that is what they SEE happening with money.
- Mom gives money to the grocery store clerk and carries groceries out of the store.
- Dad swipes his credit card at the gas pump, and it allows him to put gasoline in the vehicle.
- Grandma gives money to her beautiful grandchildren (your children, of course) and you take the child down the toy aisle to buy something with it.
Since “spending” is what we see happening with money from our earliest days, it is what most children grow up knowing about money. For them, money equals spending.
The important financial principles of giving, saving, investing, and budgeting are not learned. Consequently, grown children leave the house knowing only that money equals spending. This is a recipe for financial disaster!
Here’s a simple thing you can do immediately to change that for your children (grandchildren):
Ask the child to prepare a budget for any money they receive – BEFORE they are allowed to spend any of it.
For example, my daughter receives money for her birthday. She and I count the money so we know exactly how much she has received, and then I confiscate it. Upon receipt of a well-planned budget, I release the money to her for use. Later on, I do a “check in” to ensure the money has been used according to the plan.
In a recent budgeting moment, my daughter was planning the use of $20. Her first budget had $2 for giving, and $18 for spending. I rejected it because there was no saving or investing. Her revised plan showed $2 for giving, $0.25 for saving, and $17.75 for spending. She gave the budget to me with a smile – knowing there was little chance of it being accepted.
I rejected it.
Her third try included giving, saving, investing, and spending. I released the funds to her.
Here’s the reasons I love this process:
- Teachable Moments This process creates space for “teachable moments” about money. It forces conversation about the importance of giving, saving, and investing. It allows us to talk about the “spender” mentality that we both share.
- Learned At Home Before my daughter enters the real world, she is receiving real financial knowledge that will set her apart. She knows what a mutual fund is and how it operates.
- The Pain of Wasting $20 is Less Than The Pain of Wasting $20,000 I want her to recognize the pain of poor financial decisions NOW when she is making $20 decisions so she doesn’t have to learn the lesson with a $20,000 purchase later.
- My daughter actually enjoys the process My daughter actually enjoys the process. It has helped her save a substantial amount of money toward her first car. She has financial margin. She knows her parents care about her.
I have my daughter use our FREE BUDGETING TOOL called the “Mini-Budget.” It’s perfect for kids.
My book, What Everyone Should Know About Money BEFORE They Enter The Real World, is a perfect resource for helping your child start out life with the financial tools and principles essential to life.
How To Prepare A Budget That Works
There are a lot of people who struggle with budgeting. They know theyshould have a budget, but there never seems to be enough time, energy, or money to prepare one.
I know the feeling. However, I also know the feeling of not having control of my money and always running into financial disasters toward the middle to end of each month. It was in December of 2002 that I experienced my IHHE Moment (I Have Had Enough Moment) and resolved to figure out a way to gain full control of my money. By July of 2003, I figured out a way to make budgeting work for my family. Below are the steps I put into place. If you put them into place, I’m confident this budgeting process will work for your household too!
- At least 3 days before the month begins, make a list of all your expected income and expenses for the upcoming month.
- Pull up the FREE BUDGET TOOL. Enter the income and expenses into the worksheet.
- Modify your income/expenses to ensure that the following formula is true: INCOME – OUTGO = EXACTLY ZERO
It really is that simple.
However, before you dive into preparing your best budget ever, I urge you to consider a few tips I’ve learned along the way:
- Prepare the budget BEFORE the month begins (before you get paid and start spending money). It is very difficult to prepare an effective plan in the midst of already spending it!
- Be realistic. I found that my previous attempts to budget failed because I was lying to myself and not being realistic.
- Put some fun in the plan. It really is okay to spend some money on FUN – as long as you aren’t mortgaging future plans, hopes, and dreams in the process.
- Use cash envelopes or a pre-paid gift card for categories where you have a tendency to overspend. This has worked wonders for my budget! The categories I use cash envelopes for are groceries, restaurants, clothing, spending money, and entertainment.
- Recognize that you will forget some expenses – especially in your first few budgets! I’ve seen many people address this by putting a “I forgot!” line item in their budget to cover these forgotten expenses.
Now go put that budget together, and start winning like never before!
5 Reasons Why Budgeting Is Important
“You need a budget.”
Chances are pretty high that you’ve heard that statement before.
If you are a saver, your heart started beating wildly (because you LOVE budgets). If you are a spender (like me), you probably felt the hair raise on the back of your neck and immediately felt flashes of frustration.
So this post is written primarily with the spender in mind. Savers: feel free to print out and show to your spender spouse or friend!
5 Reasons Why BUDGETING Is Important
- It maximizes every dollar you earn. As a spender, I can “accidentally” spend money. Preparing a monthly budget (and an annual budget once each year to cast vision for the future) allows me to know that money is limited and ensures that I maximize every dollar I do receive.
- It makes you aware of your impulsiveness. This is not the most pleasant feeling, but it very helpful to be reminded that it is much easier to remain broke than it is to win with money. My budget ensures that I am continually aware of my impulsiveness and the danger that presents to my long term goals.
- You can buy stuff without feeling guilty. This is probably my favorite reason for budgeting! I used to play a round of golf and feel guilty because I knew it wasn’t in the budget (because we didn’t have a budget). I’ll never forget the day that I was able to just go enjoy a round of golf and KNOW it was in the budget and I had planned for it! It didn’t help my golf score, but it did help me and my marriage!
- You have probably married a saver (or if you aren’t married, and hope to be some day, you will most likely marry a saver) I married a saver. Jenn is a beautiful and amazing bride, but she just does not have any desire to go spend all of our money. So when we didn’t have a budget, I nearly drove her crazy with my random ATM cash withdrawals and surprise expenses. I am certain she was the one celebrating the most when I finally “got it” and began participating in the monthly ritual of planning our spending and following that plan!
- Budgeting will fund your dreams faster. I know that I said #3 is probably my favorite, but I’m taking it back. This one is my favorite! I love funding my dreams. Because of budgeting, my family has been able to give more money away than we ever thought possible. We have been able to take wonderful cash-paid-for-in-advance vacations, pursue our dream of launching this organization, and pay off our house! All in 10 years and 1 month! I can’t WAIT to see what happens in the next 10 years!!!!
There’s my list. What would YOU add to it?
Budgeting And Saving Tips
Looking for ways to save money? Here are a few that can help!
- Coupons.com has a lot of great coupons that you can print out
- MyCoupons.com has a lot of great information on deals that are being found at various stores
- Buy off-brand items. Yes, some will taste like sawdust, but others are identical to the name brand. If you have an ALDI grocery store in your area, it is worth the drive to purchase groceries there. We save at least $50 a month by buying our essentials there – milk, bread, canned foods, eggs, etc. As a side note, their eggs can be somewhat non-uniform – I get double-yolk eggs, oblong eggs, and wobbly eggs. It is really interesting.
- Skip the grocery store for one week. Put together meals from stuff that is in the cupboards and freezer! You will enjoy some concoctions you have not had in awhile (or never), AND you will be able to save a week’s worth of grocery money to put toward your emergency fund!
- Have the kids mow the lawn and maintain landscaping instead of paying someone else to do it. Pay your kids and teach them how to save, give, and spend their money! Can you spell, “LEARNING OPPORTUNITY?”
- Cut your kid’s hair. This will save many families $20 – $40 per month!
- Visit consignment stores, Goodwill, or Salvation Army Thrift Stores. You can find some great deals on clothing!
- Shop your insurance for quotes (US Insurance Online). Get at least three quotes and obtain one of them from an independent insurance agent. You may be able to save $100 – $500/year on your insurance!
- Take a low-budget vacation instead of a $3,000 one. Using creative options, you will discover just as much fun, and you may be able to save $2,000 – $2,500 which can then be used for debt reduction, emergency fund, or retirement fund!
- Wait one day before making a major purchase decision. This will really help you to avoid “impulse” purchases like a new car, a pricey vacation, a new plasma TV, etc.
- Eliminate the home telephone. So many people have cell phones that the home phone has become virtually obsolete. For basic home telephone service you will pay $25/month, and it will not come with basic features of a cell phone such as free long distance, caller-id, call waiting, voice mail, camera, text messaging, games, etc. If you need a basic phone for emergencies, I like the MagicJack.
- Get rid of the movie channels on cable.
I would love to hear more ideas on how you can save money!