Hi everyone. I apologize for my long hiatus from writing. With a wedding and house hunting, I have had very little time to breathe let alone write, but I have returned to the blogging world and I promise to be more consistent. Today, I would like to really outline how to build a budget, because I have noticed that so many people have no clue.
Step 1: Write down your monthly income post tax.
This is probably the most important step!! You need to know how much money is coming in before you can figure out what is available to be spent.
Step 2: Write down all of your consistent monthly expenses.
These are the expenses that are always the same amount or close to it. Don’t forget to include rent/mortgage, phone bills, gas and electric, internet/cable, monthly bank fees, minimum debt payments, and insurance premiums. If you pay your insurance once or twice a year, divide the premium by the number of months it covers to give you the monthly cost and set this money aside monthly to be used when the payment comes due.
Step 3: Write down what you spend on variable expenses.
These are the expenses that change every month depending on how good of a saver you are each month. These can include entertainment expenses, groceries, household supplies, eating out at restaurants, clothing etc. Use your past credit card bills to help you figure out about how much money you spend per month on each of these categories.
Step 4: Do you monthly expenses match or exceed your income?
If yes, it is time to figure out where you can cut back. It is very easy to find tips all over the internet to use to cut back on your spending. Remember that saving money means making sacrifices. For LD and I, that sometimes means not taking a trip that we would love to go on, or waiting until a movie we really want to see comes out on DVD and we can rent it from Redbox. For some families, it means trading in the expensive iPhone for a prepaid flip phone. LD and I find it easiest to cut our expenses when we help police each other (in a LOVING way). Also, for purchases over $10, wait at least 48 hours before buying to decide how much you really want that item.
Step 5: Budget some money for paying off debt or for savings.
Make sure that you are budgeting for savings and debt pay off. We like to only budget expenses to match one of our incomes and use the other for paying off debt or putting into an account for savings. With our current plan, we will have over $40,000 in debt (student loans, car payments, LD’s braces) paid off in just over 2 years, while also saving for our future.
Step 6: Make sure your household agrees with your budget.
It is important that you bring in the people that your budget will affect. I never set a revised budget into action without going over it with LD first. He often has ideas on where we can cut more or how to make it more fun.
Step 7: Implement your budget.
Track all of your expenses and make sure to stay within the confines of your budget. LD and I like to use an app called Goodbudget to keep track of all of our variable expenses on our phones that sync up with each other. If we don’t have the money for a particular purchase, we don’t get it. Some people like to separate cash into different envelopes and only use what is in the envelopes. However you do it, make sure that you track down every little expense (even that 25 cent gum ball from the machine) so that you have more data on your spending habits.
Step 8: Revise!!
So you have had your budget going for a month. What is working? What isn’t? Do you seem to always go over in one category but never reach your limit in another? Do you want to save more? Use the data that you gather to adjust the budget to make it more efficient. I revise our budget at least 4 times a year, but usually more like 6-12. Costs can change. Food prices go up. Gas prices vary frequently. Your budget should reflect this in order not to overspend.