What Is A Budget?
The best reason to start a budget, is because it’s the easiest path available, to take control of your finances now, and for the future.
So, what is it?
A budget is a simple method of tracking “How Much Money You”:
- Make (your total net income, after taxes)
Just 3 things, that’s it in a nutshell!
There are a couple of choices to make:
- Time period – daily, weekly, biweekly or monthly
- Method – notebook, planner, spreadsheet or app
**Don’t be put off, if you can’t, or are not, saving anything at the moment. If that’s the case, you only have 2 things to track. But it’s important to recognize that tracking these 2 things will help you get out of debt and in a position to start saving, much more quickly, than if you don’t.**
What Does It Mean To Create A Budget?
The biggest reason most people don’t budget is because they have a negative perception of what it means and what’s involved.
Once they get how much their limiting belief is costing them, if they’re smart, they take action pretty quickly. You’re smart and I know that, because you’re here!
There’s a lot of brain washing out there, that’s not in your, or my, best interests. Any negative beliefs you have, are a drain on your finances, period!
We’re all encouraged to spend, spend, spend if we want to be seen as happy and successful.
Use cash, debit, credit, whatever it takes – just hand over your money and nobody get’s hurt! Ok, that’s a wee bit dramatic, but you get what I mean.
For years, budgeting has received lots of bad publicity, making it sound very restrictive and unpleasant to many people. Yet, it’s actually the opposite.
If your reaction to budgeting is less than enthusiastic, it’s worth taking time to address this because your attitude will make, or break, your chances of success. Your attitude is probably influenced by some budget myths that are worth busting.
Let’s begin with a list of some misleading ideas that put people off starting one:
- It’s boring
- Time sucking
- You need to be good at math
- I’ve got better things to do
- I don’t need one…I’m too young/old/busy/unique/weird….
- Doing any kind of ‘personal administration’ isn’t my thing
- Tried it before and it didn’t work then, so why bother
- I keep a mental note of everything I do with my money
- I’m making make plenty of money, I don’t need to budget
- I work hard, I deserve whatever I want, without restricting myself
If one or more of these sounds familiar, and something you’ve thought, you’re definitely not alone.
I get why people don’t like the idea, especially since most of the marketing and social media that we see daily is all about acquiring more stuff! As if acquiring by spending is the way to happiness, and if you don’t or can’t, then it sucks to be you!
When it comes to budgeting (and most things in life actually), attitude is everything. If you think you need an attitude adjustment and it sounds like a that’s going to be painful. It’s really isn’t. There’s an easy way to do this.
It comes down to simply making one of two choices:
- Choosing the better feeling thought, for example; “I can do this, I know it will benefit me and my family and it’s only making a few simple tweaks, that’s not so difficult.”
- Choosing the not so good feeling thought – “This sucks, I’m actually going to have to deprive myself and spend time thinking about stuff I don’t want to”.
It’s cup half full or cup half empty. Either way, money is being spent.
Personally, I’ve discovered I like feeling better with how I perceive my choices, every time.
If you think about it, is choosing to feel good such a big price to pay?
Easy Steps To Create Your Budget
We’re going to keep this simple, because it is. All you need to do is give yourself an hour or two to start this. Grab a coffee, notebook and a pen. Get comfortable and let’s get this party started. Because, this is going to be good!
Identify Your WHY
The first thing I want you to do, is to take your notebook and write down your WHY! This will be your guiding light and North Star, any time you need a nudge to stay on track, and you will.
It worked for me, and it can work for you too, if you want it enough.
Your WHY can be one sentence, a paragraph or an essay. Don’t hold back and don’t push yourself either. The main point is to be honest with yourself. What is it that you want to get out of this?
To get you started, here are some ideas. To:
- Get out of debt
- Stop worrying
- Feel good
- Live within your means
- Be able to start saving
Step 1 – Income
To start, we’re sticking with the notebook you used for your WHY. There’s power in physically writing something down.
You need to determine how much your minimum pay is each month, based on your paychecks. If there is more than one earner contributing to the household budget, include their income too.
Example – Minimum Monthly Pay : Mary $3,000 + John $3,000 = $6,000
This gives you your base starting point for budgeting each month.
If you receive overtime or bonuses, these are usually not guaranteed, don’t include these. Because, you don’t want to overstate your income, it’s wiser to be conservative. Keep a track of this additional income and we’ll address how to deal with it in another stage. Think of it as ‘icing’.
Step 2 – Savings (if any)
Remember, if you can’t or are not doing this yet, don’t worry. The whole point of this exercise is to get you to this point.
If you do, note how much you save a month. If it isn’t consistent, take the average of the last 3 months.
Example – Month 1 $200 + Month 2 $300 + Month 3 $100 = $600/3 = $200 average per month
Step 3 – Spend
Break your total monthly spend into these categories and by date (1st, 15th etc):
- Bills: mortgage, gas, water, electric, insurances, home owners, car payment, debt repayment, cell phone, subscriptions (eg: Netflix, AAA)
- Essential living expenses: groceries (estimate it if you don’t have receipts), fuel
- Sundries: haircuts, prescriptions, vets bills, entertainment, gifts, car services, car repairs
Let’s assume: Bills $3,800 + Essential Living Expenses $1,200 + Sundries $600 = $5,600
Pull it all together:
$5,800 Monthly Minimum Income – $200 Savings – $5,600 Spend = $0 left at the end of the month
Being left with nothing, or even in a negative position, at the end month isn’t what you want. But, it’s difficult to change that if you can’t easily see where the money is going. Now you can. That’s the purpose of budgeting.
How To Save Money
If you’re still with me at this point, you’re doing great and you’re on the path to maximizing your money and simplifying your life!
Keep the momentum going and complete your WHY and the 3 budget steps. Once this is done, you’ll be in a good position to start working on where you can save money and make changes.
Doing this exercise is a big deal and an emotional one too. We’re going to use this information to see where and how you can save money.
The biggest opportunities for saving money are usually with groceries. However, there are some quick wins to be found too.
But, before we dive more into how to save on groceries, I want you to go through your pantry, freezer and cleaning supplies. Most likely there are duplicates, stuff that just needs thrown out and cans of food that have expired. You should have seen the stuff I uncovered…especially at the bottom of the freezer, under the sink and in the larder. Oops!
This is a great way to do a mini declutter and it will really help you when start working on how to save money on groceries. What you already have in stock, is the best place to begin meal planning. It saves money, time and reduces the amount of food that needs thrown out. Find out more about how to get started here.
Don’t be shy, leave a comment (or email me) to ask questions, or share your best tips. I’d love to hear what works for you too.
Budgeting in all it’s simplicity, is a great way to maximize your money and simplify your life!