Part Two: Create a Budget
It’s been a week. How’s that no-spending thing going?
Well, here’s the good news: You can start spending money again. Of course the bad news is that after today’s assignment, you might not want to.
Hopefully last week’s exercise started you thinking about the reasons WHY you’re spending and also got you to start making a serious distinction between the things you want and the things you need.
(If you are new to my blog or missed out last week, you might want to start at Week 1: Stop Spending before starting this week’s assignment!)
Before we go any further, I want to make a quick but important distinction that just because something is a “want” instead of a “need” doesn’t make it wrong or bad. It’s okay to want a pretty house or good food or cute shoes. What’s not okay is to want all those things at the expense of your financial well-being or your marriage or your children or anything else that we know is more important than stuff.
If you are not struggling with your spending or find that you have plenty of money leftover for your savings & retirement accounts at the end of the month, have no trouble paying all your bills on time, know exactly where all your money is going, and don’t stress out over unforeseen expenses, then you probably don’t need to be reading this series. In fact, you probably could write it better than me because you are obviously doing something right.
But most of us struggle with money or budgeting, at least in some area. I started this blog to chronicle my adventures of learning how to live well on less money, not because I had it all figured out already. Believe me when I tell you there is plenty of room for improvement.
This week’s assignment is going to require a little more effort. The hard truth is that no one can fix your budget for you. There are no magic solutions or ten-minute fixes that will have permanent results. Improving your financial outlook will require change, and change is HARD. Do it anyway.
As I tell my four-year-old, never neglect to do something just because it is hard because it is the things you work hardest for that will reward you the most.
Don’t let fear stop you either. It can be very scary to open up the Pandora’s box otherwise known as your finances, especially if you’ve been turning a blind eye. In some ways, ignorance is bliss. But if you’re still reading up to this point, you probably know, deep down, that this is something you need to do. Take a deep breath, muster up your courage, and just do it. You’ll be better for it.
And now that the pep talk is over, it is time to get down to business.
Here is this week’s assignment:
1. Assess your income and fixed expenses
Print out the nifty budget worksheet above, then grab your bank statements, your bills, your check register, & any other financial information you can think of. A calculator might come in handy too. Then grab a glass of wine, sit down (with your spouse if your married), and start crunching the numbers. Use worksheet number one to list all your sources of income, as well as all those key fixed payments you MUST make each month.
Use worksheet #2 to add up all the subtotals of your fixed expense categories, then subtract that total from your income. The remaining number is what you really have to work on creating a budget for.
In the coming weeks, we will work on finding ways to lower both your fixed AND variable expenses, but we need a place to start from, and this is it.
2. Create a budget for your variable expenses
Use a pencil to fill in each category with what you are currently paying each month, then add up your subtotals and see how it compares to the number you are shooting for. Then go back and lower different categories as necessary. Obviously some things, like your water and electric, won’t be adjustable, but other things can probably be cut significantly. Include SOMETHING in your savings budget, even if it is just a small amount. If you have credit card payments, include those in your household expenses as well.
3. Take some time to self-reflect
This step may be the hardest, but it is also the most important. Complete worksheet #4 and make some concrete decisions and goals based on what you’ve discovered through this budgeting exercise.
Maybe you’ve realized it is time to cut up your credit cards, or, at the very least, put them on ice. (Fill a bowl with water, put your credit cards in, and freeze. If nothing else, it will slow you down!) Maybe you’re ready to start packing a lunch instead of going out or to give up cable. What you spend your money on is a very personal decision that only you can determine for yourself (or with your spouse.)
4. Track your spending
The last page of the PDF packet is an expense tracker. Print out as many as you need, and use it to keep track of everything you spend. At the end of each day, and then again at the end of each week, go over your expenses to make sure you are staying on track. The more frequently you “check in,” the less likely you will be to let your spending get out of control. Little things add up quickly!
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Keep in mind, once again, that I am not a financial expert. You are welcome to use these worksheets to help you–they are what make sense to me–but there are lots of other budgeting books, worksheets, & software available that might work for you better. In fact, you may remember Jesse Mecham from YouNeedaBudget.com, who guest posted twice last month during Take 5 in June. Jesse is a budgeting whiz and created an awesome budgeting software program called–you guessed it–You Need a Budget! If you or your spouse are more computerized record-keeping kind of people, you might want to check it out! (And if you didn’t have a chance to read his 5 Tips for Talking to Your Spouse About Finances, do it right now!)
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Whew, what a week! I know this probably seems like a lot, but please don’t give up on me! I promise it will be worth it in the end, and your bank account will thank you. Stay tuned for another riveting installment next Wednesday and remember, I want to hear from you! How did your first week of the challenge go? What did you learn about yourself or your budget?
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