“A budget is telling your money where to go instead of wondering where it went.”John C. Maxwell
Every great financial plan starts with a dollar and a dream. However, a dream without a plan is just a wish. Luckily, you have a frugal friend to help turn your dreams of financial freedom into reality. Here’s how to go from budgeting beginner to a money managing pro:
“I’m super excited to do my budget!” says no one EVER. Not even accountants. Budgets are boring. Budgets are like running, you hate doing it, but apparently it’s good for you.
Step One: Find your why
“Immerse yourself in the energy of what you desire. “Hiro Boga
Why do you want to start budgeting? Maybe you want to buy a house? Perhaps you want to quit your job and start your own business? Could it be that you want to go on vacation to places you’ve only seen on the Internet? Or are you simply sick and tired of living paycheck to paycheck, and don’t want to cringe every time you swipe your debit card? Regardless of the reason, keep it near and dear to your heart. Here are some questions that will help you get in touch with your vision. Budgeting goes beyond numbers and categories, it’s for a bigger purpose, it’s for a better life.
1. What vison(s) do you have for your life? What would you like to achieve? (List every single detail, specifying everything you want to create. Words have power)
2. What are you curious or passionate about? What skills or topics have you always wanted to learn?
3. If you had to describe your dream life in only 10 words, how would you describe it?
4. What fears hold you back from achieving your best life possible?
5. When would you like to accomplish your goal(s) by? Try to set an actual date for yourself.
6. Do the people in your social circle make you better or worse? Do they support good habits or bad ones?
7. At what time in your life did you feel most alive and most fulfilled?
8. How much money do you need to turn your vision into reality?
9. How much do you owe your creditors/ those that you have borrowed from? (Refer to Debt-Free Fundamental #1: Know your Number)
10. How much money are you earning per month? (Refer to Debt Free Fundamental #2: Add Your Income)
11. What is 1 limiting factor that stops you from achieving your goals? How can you overcome or work around this?
12. What are some things you are willing to sacrifice to turn your vision into reality? (Say “yes” or “no” to all that apply)
*Your Sanity/Mental Health
*Buying new clothes
*Starting a business
*Social Status/Approval from others
*Buying a home
*Expensive foods (steak, lobster, caviar)
*Starting a family
*The area you live in
*FOMO (Fear of Missing Out)
*Going out to eat
*Going out for drinks
*Entertainment (Going to the movies, concerts, shows)
*Acquiring additional debt (credit cards, loans, etc.)
Do you see how these questions are deeper than numbers and categories? THIS IS YOUR LIFE, it’s time to get serious.
Step Two: Calculate your expenses
Take this time to find out exactly how much you’re spending each month. Start with your bank and credit card statements. Look around for old bills and receipts. I think three months is a good general rule of thumb to get an accurate picture of your average spending. Your frugal friend created a free bill tracker for you here.
Here’s a quick example below:
|Bill/Company||Due Date||Balance||Monthly Payment||Interest Rate|
Having all your bills on one page keeps everything organized, keeps you on track, and really helps you get in touch with your finances. Don’t forget to download your FREE bill tracker! (If you want a FREE digital, fillable version, shoot me an email email@example.com)
Budgeting Basic: When in doubt, WRITE IT OUT
Writing out your bills can make all the difference. We may be in the digital age, but there’s nothing like a pencil, paper, and a calculator when it comes to building your budget. Start out by writing your income at the top and subtract your bills as you go along.
Step Three: Add up your Income
Now let’s add up how much you’re making:
Step Four: Tell your money where to go
Here’s where we’re going to calculate how much you should be spending in each category.
Q: How do I calculate how much I should be spending per category?
A: Great question! Simply take your monthly income (after tax), turn the recommended percentage into a decimal, and multiply. Here’s an example:
Let’s say you bring home $3,000/month after taxes, and you want to know how much you should be spending on food. The chart below recommends 10-15% of your budget should go towards groceries and eating out. Time to do some math 🙂
Monthly Income: 3000
Recommended %: 10-15 (.10 and .15 turns into a decimal by moving the decimal two places to the left)
Multiply: 3000 x .10 = 300
Multiply: 3000 x .15 = 450
You should be spending $300-450 on food per month.
Let’s do another one to make you a budgeting pro! This time we’ll go with housing. The chart below recommends 25-30% of your budget should go towards rent/mortgage, insurance, taxes, and fees. Ready for some more math?
Monthly Income: 3000
Recommended %: 25-30 (.25 and .30 turns into a decimal by moving the decimal two places to the left)
Multiply: 3000 x .25 = 750
Multiply: 3000 x .30 = 900
You should be spending $750-900 on housing per month.
Here is a chart that can be used as a general rule of thumb if you’re wondering how much you should be spending per category each month.
|Item/Category|| % of Income (Recommended)|
|Saving (Emergency Fund/Retirement)||5-10%|
|Housing (Rent/Mortgage, Insurance, Taxes)||25-30%|
|Utilities (Water, Electricity, Gas, Phone)||5-10%|
|Transportation (Car Payments, Gas, Insurance, Repairs)||10-15%|
|Medical/Health (Insurance, Doctor/Dentist Bills, Medicine)||5-10%|
|Personal (Clothing, Life Insurance, Child Care, Grooming, Education, Gift, Child Support, Fun Money, Misc)||5-10%|
|Recreation (Entertainment, Vacation)||5-10%|
|Debts (Credit cards, Student Loans, Other)||5-10%|
Source: The Money Answer Book by Dave Ramsey
Now it’s your turn to calculate how much you should be spending. Grab a pencil, paper, and a calculator and use the chart above to get your magic number for each category.
Q: What do I do if I’m over budget?!
A: KEEP GOING. It’s going to be hard, it’s going to be like learning how to ride a bike. You’re going to fall and scrape your knees, but you hop back on and keep pedaling. The beauty of a budget is that it’s different for everyone. You’re going to have to adjust accordingly to what works for you. Let’s say your food allocation is above budget. You can’t keep it between 10-15% no matter what you do. But, let’s say your job pays for your insurance or your car is paid off, or utilities are included in rent. You can take those and weave them into your budget. If you find yourself overspending, take a step back and review your spending. Where is your money going? Are you going out to eat multiple times a week? Are you purchasing on impulse? Was there an emergency? Or is your budget just flat out unrealistic? Analyze your spending and adjust your budget accordingly.
Q: What if I STILL can’t figure out this budgeting thing?
A: Have no fear, your frugal friend is here! We all need help sometimes, especially when it comes to money management. Your frugal friend is here for anything you need, whether it’s Paycheck Planning, Currency Coaching, and Phone Your Frugal Friend conversations available. My top priority is to get you headed in the right direction on the road to financial freedom.
Step Five: Track (and calculate) your spending
“The person who doesn’t know where his next dollar is coming from usually doesn’t know where his last dollar went.“Unknown
Tracking (and calculating) your spending is the MOST IMPORTANT step if you want to become (and remain) financially free. Tracking your spending shows that you value your time and your money. It also holds you accountable for your purchases. Make it a goal to track your spending EVERY SINGLE DAY. It does not matter if it is the 1st of the month or the 18th, start tracking your spending TODAY. It is time to create new habits and keep an eye on your hard-earned money.
There are plenty of ways to track your spending. There are free apps that will track your spending and break down each category, like Clarity, Mint or Wally. Certain bank apps will even break down your spending as you go. I prefer to use ‘Notes’ on my iPhone to track my spending, then transfer the data to a Google spreadsheet, and calculate my totals.
Here’s a super simple way to track your spending:
Here’s an example of how I track my daily totals:
Purchase: $118- Plane ticket to New Orleans
Now let’s break it down:
Date: March 1
Keeping an eye on your hard-earned money is really that simple. I’ve created a spending tracker for you here. (You can print this out and write it down as you go. Let me know if you want a fillable version and I’ll email one over to you! Shoot me an email: firstname.lastname@example.org)
Step Six: Adjust Accordingly
Beginning to budget is not rainbows and sunshine, it’s headaches, overspending, and bullsh*t. Getting started is the hardest part. The first month or two or three are going to be test runs. This is where you experiment with your recommended spending categories from step four. Is 10-15% too much or too little for food? Are you over or under when it comes to housing, utilities, and transportation? Keep an eye on the numbers and tweak them if necessary. Make your budget as realistic as possible. Honesty is the best policy. Sometimes you may have to pick up another job or drastically cut back on your spending to make the numbers work. Whatever you do, KEEP GOING, you’ll be glad you pushed through.
What part of budgeting works for you? What’s the hardest part about budgeting? How can I help? Anything you need clarification on? Let me know in the comments below! Please share this post and tell a friend to tell a friend so we can be debt-free TOGETHER! I hope this article helped put budgeting in perspective. Thanks for reading 🙂
Stay frugal, be BRILLIANT!