Updated: Jun 30, 2021
This song is amazing and makes me want to dance, but please don't take its financial advice.
So far in this blog, I've been giving an overview of my experience with becoming financially fit. Now I want to go into some detail on how I was able to get where I am now, starting with this blog post on budgeting. That being said, I am still learning in this process and would welcome suggestions, ideas, or new methods/theories on finances that you have come across. Additionally, if there is a topic you've been dying to learn about, put it in the comments! That will spur me to do some research or dust off some previously-acquired knowledge to make sure I'm responding to your inquiries.
As I previously mentioned, budgeting was not something that was easily and instantaneously achievable for me. My first attempt was so disastrous that I gave up. Well...I gave up using the budgeting sheet offered in Dave Ramsey's book. I hadn't yet given up on the concept of budgeting, so I explored other tools.
The first of these tools was Mint, which I used for several months. Some of you may be familiar with this website. Mint allows you to link almost all of your financial accounts to it so that it can automatically track your expenses. I liked that it gives you your net worth by adding up your assets and debts. It was a pretty bleak picture for me when I initially started using it as I was in the negative, but that served as a motivation to pay off my student loans quicker. It also shows your spending trends in a visual way which I found helpful.
What I didn't like about it was that it rounded dollar amounts and I wanted to track my money to the penny. And while it had a lot of categories, I felt like some of my expenses didn't fit in the categories they provided. I also couldn't really manipulate the categories to my liking. (This may have changed as I used it some time ago.) However, it did serve to get me into a budgeting mindset. I also know plenty of people who use it and it works for them.
In addition to Mint, I was using a tracking system that was built into my online Bank of America account. This tracking system was similar to Mint's in that I could visually see the trends in my spending. But neither of these systems really captured what I wanted, and I was finding it hard to stick to them.
When I re-read The Total Money Makeover, I was reintroduced to his budgeting sheet. I decided to give it another try, and this time, I was able to do it.
The concept is relatively easy. Whatever your net gain is for the month is the amount of money you have to budget with, and each month is a new budget. For example, if after taxes you make $3,000, that is what you budget for each month. There are several categories, and you fill out each category until you have accounted for every dollar of that $3,000. I start with all of my necessary and regular expenses such as my monthly phone bill, my rent, my groceries etc. Then I plug in expenses that are unique to that month. Maybe I need to buy a plan ticket in November for December travel; that goes in the November budget. Or maybe I need to get my hair done that month; that also goes into the budget. All of these expenses should add up to your monthly net worth.
If I will be purchasing a plan ticket that month, or buying anything that I am not exactly sure the cost of, I do a little research first so that I budget within the ball park. I sometimes have to adjust my budget during the month as well. Again, as long as the total amount of budgeted expenses add up to your monthly net worth, you're fine. If you are making adjustments to the same categories every month, then maybe you need to add more (or less) to that category the following month.
The good thing about budgeting for me was that I was able to realize that I had plenty of money to tide me over for the month. This may not be the case for everyone when you start off budgeting, but don't let that discourage you. Setting a budget is the first step in getting control of what you are spending and where your money is going. You are able to see what you spend the most money on and decide if you are okay with that or not. My restaurants budget is one of my biggest line items every month because I like to eat. Yours might be shopping, or treating yourself to spa days. As long as your necessary bills are paid, you have the option to do whatever you want with the rest.
Below is a snapshot of the budgeting sheet I used. This is based off the budgeting sheet from Dave Ramsey with some of my personal touches. He recommends budgeting by hand. I do mine in an excel spreadsheet because I am not a math person. I was able to create formulas in the cells that lets the totals automatically update. I also added in a column that tells me how much I have left in each category so I don't have to do that math either. Adding in my expenses manually, rather than automatically like in Mint, makes me more accountable and aware of what I am spending.
I have sent this budgeting sheet to many people to use, and they have tailored it to their own needs. (If you want a copy let me know!) Maybe manually adding in your expenses isn't helpful to you because you won't do it. Maybe you need to budget for two months instead of one. You should find a budgeting system works best for you, one you can stick to, and do it. Budgeting is essential to financial fitness. It allows you to see how much you have to spend in a given time period and where the majority of your money goes. It allows you to start adjusting and taking responsibility for your spending. It allows you to set realistic financial goals and stick to them. But most importantly, it allows you to be in control of your money.
Today is October 29th, and I made my November budget this afternoon. I try and make next month's budget during the last week of current month. I encourage you to take a look at your monthly net worth for November and jot down some numbers. How much do your regular bills take up of your monthly net worth? How much do you have left over? What financial or fun goal can you put that surplus to? Budgeting may take two or three months to really get it down, but take it from someone who has been budgeting for 4 years, it is worth it.