Back in July, I decided I was d.o.n.e. done with barely making it from one paycheck to the other. I was spending my money on pretty stupid stuff, never had anything to show for the money I was spending, and was feeling overwhelmed by debt.
Somehow or another, I stumbled upon Dave Ramsey. Now, I can’t really vouch for this guy. I haven’t actually read his book. I joined a budgeting facebook group which is loosely based on his principles and read an e-book very abridged version of his book.
I’ll wait while you click on all those links…
Anyways, maybe along the way you’ve realized, as I did over time, that this dude is a Bible-quoting, Fox News kind of guy. We all know how I feel about all-uh-dat.
BUT if there’s one thing I’ve learned is that sometimes you have to take what works and leave the rest. So rather than write the whole thing off and continue to hide my head in the sand about my finances, I put some of the tools to work. People swear by what this guys says, so he must have at least something good, right?
I have never felt better about my relationship with money since I started this. My income has not changed. But my attitude about and use of my income has changed significantly. And I feel richer for it.
So I sat down to do my October budget (very late!) and thought I’d walk you through what I do. We each have very unique financial situations so clearly not everything I do will apply to or make sense for you or your family. But.. wait for it…
take what works and leave the rest. 😀
First, some explanations: This is based on a “Zero Based Budget” – which means that at the end of the month, your paper should say you have zero dollars. Here’s a paper bag for your to breathe into. Relaaax. You don’t actually have zero dollars. This just means that every dollar has a name. There’s no such thing has “random” or “free” money. If I have money “left over” at the end of the month, I need to make a decision of what to do with it – put it in savings, apply it towards debt, etc. So a zero-based budget doesn’t mean you spend all your money, it means there are zero dollars that are left unaccounted for.
I do my budget in my planner (I’ll post about that soon!) because when it comes to math, I need to write it down (show your work!) I actually manage most of my money online, though. I use BillPay so I don’t have to deal with writing checks and use my debit card just about everywhere. Dave’s method is a cash envelope system – as in, take the cash you will need for each budget item and put it in an envelope. That just isn’t practical to me. For example, I’ve signed up for SmartPay with Cumberland Farms so I save 10cents/gallon by using the app. So I’m not about to take out cash to pay for gas when I could save money by using the app. I’m also notorious for losing things. I’d rather lose (and replace) my debit card than an envelope with all of my money. The difference between carrying cash and carrying plastic is a personal one you’ll have to grapple with. I trust myself to not go too swipe happy. For some, that’s just not an option and they need cash in their hands to control their spending. You’ll have to think about what’s going to work for you. Which brings me to step #1:
Step one: Start talking to yourself (or anyone else that spends your money)
All of this is pointless if you’re just going to be creating this lovely document but then not actually changing your behavior. This is not about money: it’s about behavior. If you’re not willing to make changes, if you’re not willing to be honest about where you’re money is going and where you want it to go, don’t waste your time. I’m not saying that to be mean, I’m saying it because then the budget won’t work, your finances won’t improve, and you’ll just feel bad about yourself. And I don’t know about you, but when I start to feel bad about myself there’s one thing that always makes me feel better for a hot minute: Retail therapy. Thus the cycle continues.
Lather. Rinse. Repeat.
Also know that if you are in a family/relationship where two people deal with the money you’re budgeting, you need to BOTH do this. It does absolutely no good if one of you is all on a budget and doing well and the other has no idea what is going on or is off doing something else. That’ll only breed resentment and distrust.
My husband and I keep separate accounts as well as our household money. We follow a similar budget strategy to what I’m going to show you here with our household budget. This post will be about my personal finances.
So for my personal finances, I knew my truth was that if I don’t have some fun money, I’m going to rebel. I also know that I need to look at behavior and not just math. Money is about so much more than addition and subtraction. I need to listen to my feelings about money when making budget choices. This will come up throughout the steps..
Step 2: Set the Table
Picture yourself “dealing with” your money. When is it? Where? For how long? For me, it used to be that I never thought of money until I was like, “Crap, I think I’m out of money.” or “Whoops, this is due and I hadn’t planned for it.” These moments were just that – moments that intruded on other areas of my life – like in a work meeting, while making dinner, in the car. Money is such an important, interwoven part of our lives. This is not a bad thing. It doesn’t mean that we are money hungry greedy bastards that just care about money. What it means is that the home you live in, the clothes on your back, the trips you take, the time you spend with your family, the food you eat? Money was a part of that. Have goals for the future? I bet somewhere along the way, you’re going to need some money somehow to get it done. Money is a tool, and tools are good! So don’t you think something that is so much a part of what we do should get some actual time and attention?
So I take the time, once per month, to actually sit down and plan my budget for the next month. I take time every week to “process” things – and I don’t mean go swipe my card or check my account balance, praying that it’s not red. What I mean is I sit and have a “date” with my budget, whether it’s an hour to plan for the next month or 15 minutes to make sure everything is where it was planned to be. This isn’t in my head while driving or in the shower. If you want a lovely dinner for your family, you don’t just randomly think about it for 2 minutes before 6pm and think “Gee I hope some dinner shows up on the table…” You take the time to plan a meal, prep the ingredients. Cook the food. Set the table. Do the same with the money that is going to help you and your family meet its goals.
Step three: Whatchya got?
My next step is to actually write down how much money I have. And I don’t mean I log onto my online banking and look at how much I have in this moment. I like to plan my budget 2 weeks before it’s going to start (which is why I said I was late planning my October budget on September 25). This gives me the opportunity to really think about what’s coming down the pike and how I’m going to meet my goals. So first I have to look at what I’m working with. This way I’m not approaching this from a deficit mindset (who wants how much from me?) but from a place of abundance (what’s in my toolbelt to get the job done?). Trust me when I tell you that that small change in the conversation you have in your head about money makes a world of difference. Try it on and see how it feels.
You’ll notice that my income doesn’t start on 10/1. The month starts on 10/1, which means I’m going to need money that day. I get paid weekly, so really I need that 9/26 paycheck to start paying for stuff in Oct. My first paycheck in October is on the 3rd, so if I started by budget with that paycheck, I’d already be 3 behind. Ya dig? This also means that my income ends before the end of the month. That last paycheck in October is actually going to start my November budget, just like my last paycheck in Sept is starting October.
Woot! October is one of those months that has an extra paycheck!!
My budget is pretty easy because I get paid every week, the same amount, from one source of income. Your income section might need a little more thought and averaging than this if you get paid at different intervals or don’t get paid the same amount. This is okay and doesn’t mean you have to just throw the budget to the wind. Don’t use that as an excuse. Take the most educated guess at what you’re income will probably look like for the month. Remember that the budget you’re planning now is a plan – you’re not going to actually write all the checks today. So if things change in your income, use your weekly “dates” with your budget to make some adjustments.
Step four: What do you need?
Next, start listing your expenses for the month. This will look different for everyone because we all have different money lives. I like to start with listing my absolutes for the month. The things I know I am going to need money for and how much. Some of them are definite – my cell phone bill is the same amount every month. Others, I went back through my previous spending and figured out what I was spending. Take gas, for example. I was spending about $40 each week on gas (ugh, I know…). So I budgeted for $45/week for gas. Maybe it’d be a little less, but I wanted to give myself a cushion. Even though no one was going to send me a bill every month like Sprint does, it was an absolute. I can’t not put gas in my car. I can’t not pay my credit card bill each month. I also have a regular doctor’s appointment every other week. This is super important guys, listen up. I listed that as a bill. I looked at the month of October, saw how many times I was going to end up shelling out my copay and budgeted it. This way it’s not the day of my appointment and I’m standing there with my checkbook saying, “Uhh… don’t cash this ’til Thursday…” because I didn’t plan for it. This is one of the few things I actually take cash out for, all at once. I’d rather have those $90 just out of my account at the beginning of the month so I’m not tempted to spend it. Also, my only other option is to write her a check, which means I have to wait for the check to clear and that always makes me nervous. Did that check clear yet? Did it yet? How about today? I’m too OCD for that. So, gather all of the things you HAVE to pay each month. What I call, my absolutes. You may have others on there like “Groceries” or utility bills if this is a household budget. Like I said, I have a separate budget for that stuff.
So there are a couple of other things I want to tell you about expenses. See that Perkins line item? I don’t actually owe Perkins (one of my student loans) any money in October. I pay that bill quarterly. BUT I don’t want the end of the quarter to come and have to shell out the whole payment. So I created what Dave calls a “sinking fund” – a pot of money that you add a little to over time to prepare for an expense down the road. I also have my xmas fund, where I deposit a dollar more than I did the week before (so, one week I deposit $1, the next $2, the next $3…). These are the types of things you don’t need to spend money on every month, but when you set aside money every month or week, when you do need the money, you’ll be glad it’s there. You could also set up sinking funds for things like a new car or a house or a new TV – things that you want to chip away at over time. Consider it like a layaway program for peace of mind in future expenses. Who doesn’t love layaway?
So once I have my absolutes listed, I go back and figure out what’s left to attack my negotiables. My negotiables are the things that I can decide how much I put toward. Sprint doesn’t give a crap if I would rather spend some of that $91 somewhere else. That’s an absolute. But how much spending money I allow myself is negotiable, depending on what other goals I set for myself that month. I generally give myself $80/month in spending money (for things like take out, make up, clothes, random purchases at Target, etc). It keeps me satisfied. I am also working on Baby Steps 1&2 (if you didn’t read the Dave Ramsey thing I posted above, that’s setting an emergency fund and paying off debt). Since this is just my personal account and not the household budget (where we have our $1,000 efund) I’m working towards a $500 efund. I’ll talk about how I pay my debt (Dave calls it a debt snowball) later – this post is already long enough. So, once I figure add up all my income and subtract my absolutes, I negotiate the negotiables. You’ll also notice that I give myself a $25 cushion just in case something goes awry. I want to plan for a zero based budget, but I don’t want to actually ever have zero dollars in my account.
Step five: Go with the flow
The next thing I do it predict a cash flow. I write each week out of my budget (usually starting with payday) and see how my money is going to come in and out of my account. This is a time to see what’s due before my next paycheck comes in so I can decide when to pay for things and how to make my money last. The middle of the month is a tough spot because a lot is due all at once, so I try to use some of my first paycheck or two to pay for one of those bills so it’s not all coming out of my third paycheck. The first thing I write is the stuff I have to pay for every week (gas, xmas fund) then I see what else HAS to come out that week because of a due date, then I see if there’s something else I WANT to take out (spending money at the beginning of the month is nice… I like to take out those doctor copays right away, like I said).
Finally, I like to write out a budget like a check register so I have all pretty and color coded (because I’m a nerd). This is also nice because each payday, when I have my “date” with my budget, I can just open to this page and see what I have to do this week – what bills need to be paid, etc. It also tracks what my account balance SHOULD be in order to make my budget work for the month – so that if things change and my balance is higher or lower than anticipated, I can see clearly by how much so I can make adjustments.
Step six: commit, but not to the point of self-destruction
This is important. Yes, you absolutely have to stick to your budget in order for it to work. But don’t let a slip up set you back. Just like any healthy lifestyle change, you have to keep your eye on the prize and get back in the saddle. Should you eat the chocolate cake? Probably not. Will you? Maybe. Does that mean that since you ate the cake you might as well forget your healthy diet and eat McDonald’s morning, noon, and night now? Um, No. Will you over spend? Yup. Will something come up that you totally forgot about and didn’t budget for. Happens to me every month. (1) that’s where the efund comes in handy and (2) that’s where planning comes in handy. Your new positive outlook with money means that instead of throwing in the towel, you look at the challenge before you and assess how you can use money as the tool that it is to get the job done. Don’t let your finances, or your fear of them, dictate your life.
Take charge. You can do it!
Your Turn: What’s your relationship with money like?