Do you get to the end of the month and say, “Where did all my money go!”? Are you living paycheck-to-paycheck. If you are, you’re not alone. Around 70% of Americans live paycheck-to-paycheck. I did for a long time. In fact, I not only didn’t save anything, but I didn’t have an emergency fund. I was one emergency away from disaster financially. And then disaster hit! That’s when my husband and I sank into the darkest days of our marriage. I never want to be there again. And, I don’t want you to be there, either! I’d like to help you get out of that pit or never fall into it.
Is the “B” word a dirty word for you?!
This post is going to show you how to do a budget. I know, the “B” word is a dirty word for some folks. Like the assignment to add up all your debt in the post How Do I Get a Handle on My Money, putting together your budget will take some time and effort. It may bring some heartache and frustration. It’s like starting to exercise. It’s not pleasant at first, but it will be worth it if you stick to it!
How do you start?
The first step to putting together your own Monthly Budget is to look at your monthly inflows and outflows of money or your Monthly Income and Monthly Expenses.
Gather Your Income Data
First, you will need to gather all your monthly income sources. This will be your monthly paycheck (take home) and any other income source you have, such as side jobs, dividends or even alimony.
Gather Your Expense Data
Next let’s look at your expenses. This will take some time, so be patient with yourself! Write down everything you spend throughout the month. There will be lots of categories.
As with the Net Worth Statement, you can track these categories and their corresponding numbers with pencil and paper, or I have created a Monthly Budget Spreadsheet. The spreadsheet has columns for 6 months, and you can expand that as needed. You may want to change the headings from Month 1 to Jan 2020 and so on. The picture of the spreadsheet can be found below, and the link to the actual sheet is below that. Again, the spreadsheet is protected and you will need to make your own copy.
Giving and Savings First
Let’s look at those expense categories. For me and my family, Tithing/Giving is always at the top of the list. We believe in the Biblical principle of “first fruits” giving. This just means we give first and budget what’s left. For us, right behind giving is saving. Have you heard the term “Pay Yourself First”? This is a basic concept in saving for the future. (unfortunately, one I did not do for a long time!) Again, it is the idea of do your saving first and live on the rest. Or Pay Yourself First and then pay everyone else!
You may not be Tithing/Giving and Saving yet. Don’t worry. Both of these concepts are VERY important, but they can be addressed when you have a clear picture of where you’re money is going every month. Saving and Giving are like a muscle…they can be developed with exercise.
Other Expense Categories
Next, let’s look at the other categories. Start with the big ones like mortgage/rent payments, food and car expenses. You will also need categories like insurance payments, cell phone, utilities, cable and internet. Anything that you pay monthly needs to go on this list. And don’t forget those pesky subscriptions. Netflix, Pandora or anything that is automatically paid on your credit card.
The next step is to add categories for things that happen seldom or once a year like birthday and Christmas presents. How about printer cartridges and school pictures. There’s also car repairs, vacation and property taxes. These are not spent monthly, but they need to be considered. Take some time to think about how much money you normally spend in these types of categories in a year’s time, divide it by 12 and add that amount to your list of expenses.
Let’s Do the Math
At this point, if you’re doing this on paper, add up all your Monthly Expenses and then subtract that from the Total Monthly Income. If you’re using the spreadsheet it will do the math for you.
Look at the number at the bottom or Total Monthly Income minus Total Monthly Expenses. Is that number positive or negative? Are the Expenses greater than the Income or are they less? If they are less, great! The difference between Income and Expenses can be called the Gap, and we will talk in a future post about how to grow that gap. This is what will allow you to save for the future.
Are your Expenses greater than the Income (or the number at the bottom is negative)? This is what some would call a “Dumpster Fire”! This requires some immediate action. Look at your expenses and see what you can trim TODAY! See where you can cut in order to get the bottom number to zero.
Having Zero at the Bottom
Speaking of the bottom number being zero, my instructions on the Monthly Budget Spreadsheet say the bottom line number should equal zero. The reason for this is if you have trimmed your spending down to be less than your Income, there is excess or what I called earlier, the Gap. This Gap is where you can start saving! If you have a Gap now, great! This amount can go in the Saving Category at the top of the list of Monthly Expenses. This should bring your bottom line to zero. This method of budgeting is called a “Zero-Based Budget”
Give Yourself A Break!
This is NOT an easy task if you’ve never done a budget. In fact, it takes most people about 3 months to get the hang of it. You’ll forget categories, you’ll over or under estimate what you spend. One month will have a minor disaster that has to be handled. It’s OK. Give yourself a break. Just DON’T GIVE UP!
What Does Your Spending Say?
Now that you have done your first Budget, what do you see in it about yourself. Remember the “10 Things That Make Me Happy” list? How does your spending align with what makes you happy? Or stated another way…How does your spending align with your priorities and what you value? There may need to be some changes made to your spending to align it with your values.
Wrapping It Up
If you’ve never done a budget or it’s been a while, spend some time this week gathering your data. Use that data to create a current budget for yourself and your family and then see what it’s telling you. Let it guide you to evaluate what areas of your life might need some tweaks. Don’t be overwhelmed by thinking LOTS of major changed have to happen all at once. There’s a phrase coined by Brad and Jonathan at ChooseFI. It’s called the “aggregation of marginal gains”. That means if you continue to stack small changes, eventually you’ve made Big changes. Think about what small changes can be made over the next 7-10 days.
What Does God Say?
But he who listens to me (wisdom) shall live securely, and shall be at ease from the dread of evilProverbs 1:33
In the next post, I’ll talk about why do a budget and some tips on how to use it.
Monthly Budget Spreadsheet
Link To Monthly Budget Spreadsheet
Assigmnent and Key Takeaway
Assignment – Download the Monthly Budget Spreadsheet (or get a pencil and paper). Gather all your income and expense numbers and fill in all the categories with YOUR numbers. Add or delete categories as needed.
Assignment 1 – Evaluate the bottom line. Is it positive? Great! Is it negative? See what you can change today to bring that back to zero.
Assignment 2 – What can you improve over the next 7-10 days to help your GAP.
Key Takeaway – Evaluate your budget in light of your “10 Things That Make Me Happy” list. Your spending should reflect your values and priorities. If it doesn’t, what needs to change to bring those into alignment?