Ever wonder where people spend their hard-earned money? Or better yet, where you spend your money? Do you know exactly where your money goes every month? If you are answering NO to these last two questions, it’s time to find out!
It’s time for a BUDGET. A budget will help you make sure you have enough money every month. It helps you see exactly where you are spending your hard-earned money. Using a budget is the most critical way to gain control of your money and the most important step in building a better foundation.
But there is one thing we need to discus before I share with you how to create a budget and that is:
AGREE ON IT
This is very important. If you are on this journey with someone else; you both need to agree on the budget. And remember you both will maybe need to be willing to change. You are a team and you need a plan together! If you’re not working together; it’s almost impossible to win.
Do this budget together! Sit down once a month together to see how you’re doing, you both need to be actively involved in the process. And who knows, maybe as you continue though the steps you both will be willing to do more because you see the changes!
HOW DO YOU CREATE A BUDGET?
I am going to share the process we used to create our budget and how we use it every month. To start, take a paper and make two columns. On one side write income and the other expenses. OR better yet download my FREE Income & Expenses Printable (you need to be an email subscriber!).
INCOME:
- The first thing you need to do is figure out your monthly income because this is your greatest tool. Add up all the money that comes into your life every month (or an average if you work on commission but low ball it). Then write it on the income side of the paper.
EXPENSES:
- Now for the expense side of the paper. Before you start naming all your expenses, start FIRST with the MUSTS!! This would be your mortgage/rent, food budget, utilities, insurance, aka: the payments you have to make or you will lose something (something that I always write down first is my tithe or donations). If you are not sure what you’re spending on something (food). See exactly how we figured that out in the “What am I Spending” section below. You could be shocked with what you are spending!
- Here is a list of possible expenses to get your wheels spinning:
– tithing or donation
– mortgage/rent
– food
– utilities
– student loans
– gas
– car payment
– car maintenance
– medical
– insurance
– child care
– clothing
– entertainment
– vacation
– savings
– house projects
- Here is a list of possible expenses to get your wheels spinning:
Once you have all the musts, write down all the other things that you need to pay for in the “Additional” category. Are you forgetting anything? Check your bank accounts to make sure you have written everything down.
WHAT AM I SPENDING?
The hardest thing for me when I first did my budget was figuring out what I spent on current things every month (food, utilities, gas, clothing, etc…). The easiest way I found to figure this out was by going back in our accounts for 3 months (6+ for others) and writing down the amount I spent each month for that one thing. I then added the totals together and divided by the number of months to give me my average. I must say I was shocked when I did this with my food spending.
PLANNING AHEAD!
Another thing you need to include into the budget is things that you have to pay every year. I hated those moments when that bill came and I would say “on crap” I don’t have that money. Those things for me are car registration, car maintenance, gym membership, Christmas, birthdays, house projects, and vacations (could be insurances & taxes). For these, I would either look back at what they cost the year before or say I wanted to spend this. Then I divided that number into 12. This was my amount I needed to save every month for that expense.
IF you are using the Income & Expense PDF, you will have a section called “Plan Ahead” and you will notice the formulas are already there. But I want to explain them in a little more detail for you.
TIP for car maintenance: The way I figured this one out was figuring out how many miles I drive a year then divide that by the miles I need to change my oil by (3,000-5,000 depending on the vehicle). This was how many times I needed to change my car oil each year (round it up). Then multiple that number by the cost to change your car oil. That’s your cost per year. I also did this for my tires.
- Example: Let’s say my tires cost $500 (can look this up online) and I need to replace them every 3 years (depends on how much you drive because mine is more like 4 years). Take 500 (cost) and divide it by 3 (years). It equals $166.67. Then divide that by 12 (months in a year). I would need to save $14 a month to pay for my tires in 3 years. $14 is a lot better than $500 in one month!
The biggest thing with this is having the money for when you need it. SAVE yourself the stress!!!
OK, I HAVE MY INCOME & EXPENSES, WHAT’S NEXT?
Now that you have figured out you income and expenses it’s time to see where you are at with your budget. This will help you decide where you could cut back on your spending or how much extra you can put toward your goal. You could just subtract your income from all your expenses to give you an idea. But in the next STEP, I will be sharing a budget spreadsheet I use every month, plus it calculates everything for you!
If you happened to miss the last STEP – Goals and Sacrifices, be sure to read that post before moving ahead. It will help prioritize your spending.
Move now to the next step to discover how to use a budget.
CLICK HERE TO MOVE TO STEP – 3: USING A BUDGET
