budgeting 101

I feel like budgeting for a lot of people is like exercising or eating healthy. We know we should do it. We know it will make our lives better. But getting started sounds hard. Consistency? Also hard. Sitting buried under two cozy blankets with a plate of warm chocolate chip cookies, doing some online shopping or vacation planning sounds much more delightful.

Budgeting doesn’t have to be painful if we set up realistic goals. Here’s how to get started:

  1. Decide where you’re going to keep track of your expenses. You can use an Excel spreadsheet or an app like Mint, YNAB, or Everydollar. I have tried all of these and like Everydollar the most. I always have my phone handy, so it’s easy to punch in expenses in real time. Since I am manually entering them, I don’t have to worry about anything being mis-categorized or not synched.
  2. Set up your categories. Go back through your bank and credit card statements for the last 3-6 months and list out all your expenses in their various categories.

For example, here are my categories:

**Note: I am using net paychecks here. That means payroll deductions like health insurance and 401k contributions are not included. You can do it either way, but be consistent.

3. Tell your dollars where to go. After you’ve accounted for all your expenses, you need to allocate every single dollar of your income to a category. These numbers should be realistic and based on your spending history. Don’t put $600 for groceries if you’ve spent $900/month for the past three months. In more discretionary categories, such as eating out or clothes, you can choose to be more goal oriented, but your goal for the first few months of budgeting should be AWARENESS, not cutting back.

4. Sinking funds. You’ll notice amongst my categories I have several sinking funds set up. They are: Electronics replacement, car, Christmas, medical/dental, and pet. Basically since these type of expenses occur on an irregular basis, I allocate a certain amount each month to each category. If an actual expense is incurred in one of these categories during the month, I log it. Otherwise, I actually physically take the money out of the bank at the end of the month and put it in envelopes. I’ve also heard CapitalOne 360 has a way you can set this up electronically. This method helps smooth out those large irregular expenses.

5. Automate your savings. After reviewing all your expenses, can you come up with a savings goal per month? If you have debt to pay off or an emergency fund to build up or even a vacation to save for, you should set an amount and automate your savings. When I get paid, I set it up so that a portion of my paycheck automatically goes to a separate savings account. We need to pay OURSELVES first. HOPING to save money at the end of the month won’t get us anywhere. I’ve been doing this for years. My budget gets blown more than my husband. We need to save money first, and feel the pain of having to move funds over when we blow the budget.

6. Give yourself grace. It will take time to calibrate your budget categories. Sometimes we go out knowing our takeout budget for the month is maxed out. We splurge. We impulse buy and live to regret it. Don’t give up!!!! Going $100 over a carefully crafted budget is SO MUCH BETTER than having no budget and no idea what you’re spending. Keep your end game in mind. Budgeting will lead to more money in the bank. Having more money gives you the freedom to pursue dreams, re-prioritize, leave a legacy… the possibilities are endless!!!