“Caleb, what ONE THING can I do to change my financial future AND improve my relationship with my spouse AND reduce stress in my life?”
If you came and asked me this question, I could sum it up in one word. Budget. Do a budget and live by a budget.
Chances are, you probably think that you are already budgeting. According to this Time article, 82% of Americans say they keep a budget. But you should keep reading because that same article also says that over 50% of Americans either just keep track of things in their head or quickly write it on paper. It also says that less than 40% of Americans have more than $1,000 saved for an emergency.
Now, call me crazy, but having less than $1,000 of savings sounds anything but stress-free to me.
So, chances are, even if you think you have a budget, you are probably doing it wrong. And that’s a real shame because maintaining a monthly budget provides the foundation you need for general well-being in many areas of your life and not just financial.
Money impacts nearly every area of our lives. It impacts the jobs we chose and the amount of time we spend working each day, week, and month. Our jobs and income play a large role in the amount of stress we have. Stress will affect your relationship with your spouse, your children, your friends and your coworkers.
The amount of money you have…or don’t have…plays a large role in the food you chose to eat, what you do with your free time, and even the conditions you live in at home.
The problem though is that living off of a budget isn’t something that most people do. If you don’t budget there are probably several reasons for this but I’m guessing the main one is that you just weren’t taught about it. Your parents didn’t teach you and your teachers didn’t teach you.
Not only were you not taught HOW to do a budget, you also weren’t taught WHY to do a budget.
I want you to scrap everything you think you know about budgeting. Start with a clean slate in your mind. You may already know most of this but if you start from scratch, sometimes you’ll be surprised at the nuggets you’ll find.
Start with Why
Let’s start with why. Why is budgeting so important?
To borrow a phrase from others who are far smarter than me, budgeting is “telling your money where to go instead of wondering where it went.”
Creating and living off a budget allows you to be in control of your life. It puts you in the driver’s seat and places your own hands on the steering wheel and your own feet on the pedals.
You don’t have an infinite source of money. It doesn’t matter if you make $1,000 per month or $100,000. There will always be plenty of ways to end up with more month left than money. (Although I’d sure like to try my hands at $100,000 per month!)
How to Budget
The how part of budgeting is actually the easiest part. You can customize it to fit your needs but the basic 2 steps are as follows:
1. Start With Your Income
You will never succeed in budgeting if you don’t start with the income. You must know exactly how much you will make the next month. Or, if you do it like I do, you are one month ahead so you use your current month’s income for next month’s budget.
(For example. Let’s say this March I receive a total of $5,300 in paychecks. I’ve already budgeted for all March expenses (From February’s income) so that $5,300 is the number I make my April budget off of.)
2. “Spend” Your Income Before the Month Begins
On paper (or on your computer or mobile app), designate every dollar to a category. You shouldn’t have any money left over. So in my $5,300 example above, I will designate all 5,300 dollars to some category.
I personally use auto pay for utilities, mortgage, and monthly insurance payments. For the rest, I put the cash in envelopes and spend from those envelopes. I never use a card, debit or credit, for anything except online purchases. (And when I do that, I take the cash out of the appropriate envelope and either put it in the bank or set it aside for next months budgeting.)
That’s really all there is to it. Once you get it down, the monthly budgeting process should only take you a few minutes once a month.
What Budgeting is Not
Budgeting is NOT a list of expenses. It is not a list of how much you SPENT. That is the way our government uses the word budget and you can see the huge mess that it has gotten us in, trillions of dollars in debt and counting. If all your budgeting entails is writing down how much you spent on each category, you are completely missing the point. And you are missing out on the tremendous value that budgeting can bring to your life.
Conclusion and Invitation
As I started to write this blog post I began to realize that there is no way I could put it all down in one post without making it thousands of words. Budgeting really isn’t complicated but if you’ve never done it before, or have never done it properly, it can be very helpful to have someone walk through it with you.
My wife and I have budgeted since day one of our marriage. It has now been almost 7 years! We still do a monthly budget. We still spend cash except for online purchases. We’ve never needed to tap into our emergency fund because part of the budgeting process is saving for things that we know are going to take money from time to time. (Car repairs, appliance repair/replacement, etc.)
I haven’t done it perfectly. I have made mistakes and I will continue to make mistakes.
One of my goals for this blog is to walk with people, on a more personal level, who are ready to make a change in their personal finances. I am not quite sure how to do that yet. I know I will keep putting out articles that I believe will teach people and help change their perspective on finances. But I also want to be able to encourage and walk alongside individuals. That may mean connecting over email or that may even mean connecting over the phone.
That being said, I’d like to try something. I have no idea if there’d be any interest in it or not but here it goes.
Are you ready to start getting serious about your personal finances? Are you ready to start a real budget but the whole idea scares you? Would you like to know all the nitty gritty details of what an actual, real life, budgeting process looks like?
If so, sign up on this email list and I will show you step by step how we do our own budget. I will answer your questions and guide you through the steps of setting up your own personal budget.
(If you are already a subscriber to the blog but are interested in this budgeting series, you’ll need to sign up on this form as this is a separate list.)