Question: Who wants to talk about budgeting?
Answer: No one.
My first thought when starting to write this article was, and I quote, “puke.” No one wants to read about how to create a budget – right? To be honest, this topic sounds incredibly boring but stick with me for a minute because the real life application is actually pretty awesome. Yes, I just called budgeting awesome; I know, I’ll turn in my cool card now. In all seriousness, once I finally sat down and created a budget, my monthly anxieties about bills and spending began to fade. After a year of following a budget, I feel completely in control of my money and how I spend it. I’m no longer worried and stressed about an unexpected bill popping up or running out of money at the end of the month. Let me walk you through this as simply and painlessly as possible…here we go!
Budget is defined as, “an estimate of income and expenditure for a set period of time.” I prefer to think of it as a plan to spend your money. Essentially, budgeting is the process of creating a personalized roadmap to help you reach your financial goals whether that means paying off debt, creating an emergency fund or even saving for retirement. If you know how much money you make every month (or at least have a good estimate) and know what bills you have due every month, why not track and plan your spending so your hard earned money will be used as effectively and effeciently as possible.
Like anything in life, you will be more successful if you have a game plan. In high school, you plan for college by making good grades, participating in extracurriculars and writing admission essays ensuring acceptance to your top picks. When interviewing for a job, you prepare by updating your resume, practicing interview questions and finding the perfect interview outfit (of course). Why wouldn’t you also put the same amount of planning into something so important – your MONEY?
Budgeting can help you identify wasteful expenditures i.e. that time I spent $150 in one month on Orbit sweet mint gum and sugar-free vitamin water (dead serious – it was terrible). Shedding light on bad spending habits will help you to stop wasting money and identify where that money can better be used. If you stop at Starbucks for a latte on your way to work every morning, that can add up to about $100 a month. If you were to brew coffee at home and only stop at Starbucks twice a week, you would save $60 a month – just sayin’!
Budgeting will also ensure you’re not spending money you don’t have. This, in turn, can help you get out of debt and stay out of debt! If you have been spending more money than you make, use your budget as a tool to help you find ways to decrease your spending and/or expenses. Shortly after I turned 23, I got my own apartment and quickly realized that after rent, electric and other monthly bills, I couldn’t afford cable and the internet (gasp)! What on earth was I going to do? Yep, that’s right, I survived without it – for an entire year! How, do you ask? Mostly by repeat binge watching my complete DVD set of “The Office” (I now have all eight seasons memorized… pathetic I know). During this time I was at work eight to nine hours a day and would use the internet as needed while I was there. I knew I would have to get a part-time job to afford the extra expense of cable and internet and honestly, I didn’t want to work a second job at the time so, I managed to live without.
Just knowing you have enough money to meet your needs will give you tremendous peace of mind. Money, bills, spending – these are all extremely stressful words for me, but once I created a budget and learned how to stick to it, these words have become much less menacing. I personally do not manage stress well and get severe physical symptoms due to stress, so learning how to budget my money has been a life saver, both mentally and physically.
How to Start?
Step 1: Calculate your monthly income after taxes. If you don’t know the exact amount that’s okay, just estimate. Be sure to air on the conservative side.
Step 2: Add up your necessary expenses by writing down every single bill you pay on a monthly basis and their amounts. Items that fall in this category would include rent, student loans, credit cards, cell phone, car insurance, Netflix, etc.
Step 3: Estimate the amount of your variable needs for the month. These are also necessary expenses, but their costs may vary from month to month i.e. gas, groceries, savings, etc.
Step 4: Subtract your expenses (step 2) and variable needs (step 3) from your monthly income (step 1); this will leave you with your monthly spending limit. Knowing this amount will help you stay on budget and not overspend. You can even break this number down to know your weekly spending limit if that works better for you – remember, budgets are meant to be personalized!
If your budget is not aligning with your bank account, go through your monthly statement item by item and find out exactly where you are spending your money. This is a great exercise even if you have been sticking to a budget for years. Itemizing my monthly bank statement taught me I am not responsible enough to rent Redbox movies. I always forget to return them and end up spending waaaay more than $1.50 per rental. After realizing that I spent over $30 renting “Bad Moms” and “Finding Dory,” I broke up with Redbox completely.
Remember, budgeting takes practice. When I first started, my budget was completely unrealistic; I quickly learned that I needed to allocate money for fun, not just bills and savings. It took me a few months to get the hang of it, but once I did, it became second nature. You will definitely go through a period of budgeting trial and error, but be consistent and continue to make adjustments as necessary. Before you know it, budgeting will help you reach your financial goals – you’ve got this!