Start Budgeting… Eesh

Yesterday I talked about my bad habits and mentioned sticking to a budget. Much like working out, this tends to be a try and try again until you find where you are happiest. It took me a year to develop our budget and make it work for us. This is an individualized thing and you can find hundreds of blogs, pins, and websites on the topic. So let me add my two cents to the million dollar question. This is going to be lengthy so I might split it down into several posts.

Let me start with the why we budget. First and foremost, we want to get out of debt. I see a lot of posts like “How we cut $27K in a year off our debt” and “Save $1000 with this simple switch”.  It seems so easy! I can do that! It wasn’t but I was right, I can do it. We are still in a large amount of debt. Big breath, people. $157,000 is how much I owe in student debt. This is after consolidating. I owe about $1200 a month just in student loan payments because we make too much to adjust it down. Sallie Mae’s quote to my girlfriend, “You can make these payments so long as your rent doesn’t go over $450.” My head just exploded.

So, if you are sitting somewhere in the dark forest of misery called debt, let me help you with this simple guide :).

First, you need to get a handle on your expenses and your income. Grab a notebook. The physical act of writing this down will help you understand just how important all this is. At the top of your paper, write down everyone who is bringing in a paycheck that contributes to the family budget. For instance, Julie and Tony are the two names I would write down at the top of my page. Under those names, write down any other income sources you have, such as investments, annuities, etc. Next to those names and any other incomes write down the minimum income each would make in a month. This minimum is basically your budgeted amount you can spend. We will talk about extras later.

Now, on that sheet of paper, write down your credit cards and loans, their current balances, and their minimum payments, as well as the dates they are due. Take a moment to admire them. I know I do every time I log onto Navient. In a similar column, write down your monthly bills, like electricity and gas. Same as the debt, write down the date they are due. Some of these, like cell phone bills and rent, will have fixed amounts. You can write those down like you did for your debt. Other’, water and electric, have varying amounts. If you can, look back over your bills for the past few months and find your highest amount for that bill. If you know it could go higher, put down your payment is higher (our average electric bill has been $50 but I budget $100 a month, just in case).

This is what our exact budget looks like right now:

Expenses               Budget                  Actual                      Difference              Due Date

Rent                      $1400                  $1345                        -$55                        1st

Roth IRA               $484                    $484                               0                       8 draws

Electric                  $100                     $44.16                     -$55.84                  8th

Cable                      $100                    $55.47                      -$45.53                  11th

Phones                   $200                  $189.93                     -$10.07                   10th

Renter’s I              $43.83                 $43.83                          0                          5th

Life I                       $119.17               $119.17                         0                            1st

That is our budget for this month. As you can see, I budget extra money in a few categories. One, they can change. If we go over our data our phone bill could be more, but it usually isn’t. Two, it is easier to budget extra than try to make up the difference. These are my monthly expenses. They don’t change and I have them every month. My apartment is all electric, so I don’t have gas and my water and waste is added into my rent. Make sure you are listing all of your expenses. I also have four loans and seven credit cards. Because we were so diligent last year, we have no credit card debt! Yay us! Again, if you do have debt, write it down like your monthly expenses. Now that you have your fixed monthly expenses and your debts figured out we can get down and dirty.

Secondly, chop up all of those credit cards right now and put your debit cards into a block of ice. I am only semi joking about the ice thing, though I read somewhere that someone did do this to help keep her from using it. But really, get rid of your credit cards. All of them. Bye bye Victoria Secret card. See ya, Amazon card. Toodles, Chase card. You do not have to cancel your accounts. I would actually advise against that, but you should not have access to your cards except to pay the balances. In addition to this, remove you cards from your Amazon accounts, your iTunes account, and anything else you are currently paying with a credit card.

The reason for this is very simple. After several studies, researchers found that people will spend more money faster with plastic than the will with either cash or check. You don’t have to think about it, just swipe. Not only will people spend more, which is not bad by itself, they borrow more than they can pay back. There is a reason the average credit debt is about $15000 for the average household. So, the very first step of your budgeting goals has to be living without borrowing money you don’t have.

I also toss debit cards into this because most people are terrible at keeping track of their bank accounts. Money is very important to us, one of the biggest things couples fight about, but I can’t tell you how much I have in my checking account (insert $30+ overage charges for not knowing and buying that $5 coffee.). The only thing I suggest using debit cards for at this point is to withdraw cash, deposit checks, and to do online bill pay.

But, Julie, how am I going to pay for things? Cash! Cash is king at this point in your budgeting career. This is the next part of your budget. I use the envelope system. Your two basic items that you need to have covered, other than your monthlies, are food and gas for your car. These are just two things, and they need to be non-negotiable. I put $150 a week into my budget for food and $75 for gas. I do not go over budget (that’s a lie)! You shouldn’t go over budget anyway. These two should pretty much go into your monthlies, but I have them in envelopes for a reason. The amount you spend is not an option, which is why it is a monthly. All food, including your vending machine snacks, go into this budget. All gas, including that extra trip to nowhere, goes into this budget. BUDGET ACCORDINGLY TO WHAT YOU NEED.

Good job. You hit the bulk of your monthly budget now. Do you have it all written down? Add up your incomes and your projected, necessary expenses. Hopefully, you have at least broken even with this project. Maybe you even come out ahead since we didn’t take into account all the extra stuff you spend money on! More likely than not, you don’t currently make enough to cover your expenses, which is why you are building on your credit card debt. It is a nasty cycle. But there is exciting news! You now have a handle on what is going on with your finances. You have just taken your first step to being financially free! Good job you!

Whew, that was a lot. Check back tomorrow and I will talk about the envelope system and how I don’t follow the traditional “Cut it out” budget plan.

Some good blogs to check out:

The Dave Ramsey Plan. I read the book and this is how I got a start to handling our budget. She gives you a blip on why to use the plan, what the plan entails, and some links to various budgeting tips.

The Budget Mama goes over what I did and has a free printable to help you out.

Busy Budgeter goes into more detail as well, and takes you all the way through. I do minr differently, but here is another option for you.

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