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PART ONE – The Quick Guide To Get You Started. The Why and How of Budgeting.
Learning to implement a functional budget is a vital skill; a skill that will serve you very well. Money management is essential for any person, of any age, or at any stage in life. Whether you are saving up to make a move to your first apartment or are someone saving up for a comfortable retirement, everybody can benefit from these skills. In the end, budgeting is a crucial skill for everyone to master, and I am here to help. Whether you are new to budgeting or are someone who has tried to budget in the past, but your efforts have failed, these tips can help.
Helpful Tools You’ll Need
- Calculator
- Pencil or Pen & Notepad
- Post-it Notes
- Word Excel Monthly Budget Template
- OR
- Google Docs Sheet Monthly Budget Template
- Click the link below to see a visual example worksheet
Why budget? What’s the big deal?
Here are some reasons to start a budget and follow through with what you’ve written. A defined and clear goal will set you up for success. Without strong reasoning behind the madness, budgeting will be a hard skill to implement. Remember the DAPPS rule when setting up your goal. The goal should be Dated, Achievable, Personal, Positive, and Specific.
Example Goals:
- Reach a savings goal for anything under the sun, like an expensive purchase, paying for a great vacation, a down payment for a home, or having the funds to set yourself up for a comfortable life.
- Live within your means by knowing what you can afford to save yourself the headache of dealing with debt.
- Maximize the income you earn by spending your money wisely and with intention.
- Be prepared for a tough situation. Keep enough money in your savings account to cover all your bills, for a minimum of three months, in case of an emergency. For example, if you spend $2,000 a month always have at least $6,000 in your savings account to cover yourself if something should happen, like injury or unemployment.
Requirements for a functional budget
- Have a solid reason for going through all the trouble. This is key! Your specific goal will guide you and will be the best source of motivation.
- Keep your goals visible and in mind at all times. Use sticky notes to post them at home, and keep a copy that’s always on your phone.
- The numbers you assign for each category and bill are realistic and reasonable. It’s unrealistic to stick to a $5.00 weekly grocery budget.
- Evaluate, Reassess, and Adjust whenever necessary.
What do I mean when I say a functional budget? An unrealistic budget you can’t follow will not provide you any benefit. You need a budget you can realistically follow, one that will work for you and not against you. What are your goals for budgeting? Are you trying to build a savings or are you merely wishing to have a few extra dollars every month for some fun? Always keep the numbers you set and reasons why close in sight and mind. Write both these things down where you always have access to them. How you do that is up to you from a Post-It note to a digital copy on your phone.
3 Steps to Setting Up Your First Functional Budget
Step One
- Make a list of your personal reasons, or goals, for making a budget. Without having a defined reason behind the numbers, you will be tempted to break your budget and in time give up entirely on the concept.
- Look at the money that’s currently coming and going. Record what you spend, as your spending it. Commit to physically write down every single time you spend a penny. Likewise, know the exact income you bring in a month using your bank account statements or tax return.
Step Two
- Sit down with all your information in hand including your goals, income, and current spending patterns. Conduct an assessment of your current situation. Break down your monthly spending into categories of importance.
- Category 1 – Bills that you must be paid including things like rent, utilities, car payment, etc. These bills cannot be removed or adjusted.
- Category 2 – Bills that cannot be removed but the numbers can be adjusted such as groceries for you, food for your pets, and gas for your car.
- Category 3 – Bills that are variable and could be removed to save some money if need be for example cable, Hulu, trips to stores like Target, etc.
- If you find you need to cut back on your spending habits, take a look at what is in your last two categories. Maybe your paying for cable you don’t actually watch, or perhaps you could get by with switching to a cheaper Hulu subscription instead. Or find natural cleaning solutions you can make yourself and will save some money during that weekly Target trip.
- How much you should cut back is based on how much you are trying to save and why you are trying to budget. These figures will be very different between needing to save thousands a year vs. having some extra spending money in your pocket every month.
Step Three
- Check your progress every month by verifying you are staying on goal. Compare the numbers you set in your budget to the actual money spent.
- Repeat this entire process every few months. If your savings have not been on goal, look into the exact reasons why that is happening. Maybe your numbers were set too low and are unrealistic. Or, maybe your not keeping track of what you should be spending. Budgeting requires work and attention, commit to this dedication.
Tips for getting back on track after slipping up
It’s important to allow your budget to grow as you do. Slip-ups happen, as does life, pick yourself up and get back on track.
- Reaffirm your reasons for setting up a budget. Take a good look at those reasons of why you are going through the trouble.
- Allow yourself a little bit of leeway every now and again. Don’t use this as an excuse to go crazy, but occasionally treating yourself is perfectly fine. Our lives are not solely about function and saving a dime.
- Finally, readjust as necessary if the numbers you initially set are just not working for you. It may take some tries to get your numbers set up just right. For example, you might find you cut your grocery budget to low and new a few extra dollars for fresh fruits and veggies. know the exact amount you are about to spend before you spend it so there are no surprises at checkout.
Tips For Couples
- Create defined rules when it comes to shared money and expenses.
- Come together as a team to set your goals and budget.
- Place one person in charge of getting bills paid, but both partners are responsible for setting the budget and keeping track of progress.
- As a team, schedule some time to assess your budget and talk about your goals. How have the past few months have been helping, or hurting, you from reaching those shared goals?
What to expect from future posts in the series.
- Vacation Budgeting From Saving to Spending
- Budgeting For Living On Your Own For The First Time
- Why It’s Important To Live Within Your Means
- Helpful Tips for Growing Your Savings
- This is Why Having Money for Fun Needs to Be Part Of Your Monthly Budget
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