Are you a Budgeting Boss or a Budgeting Baby?

If you feel like a Budgeting Baby or you need help creating a budget, follow My 5 Steps and 5 Tips to Creating a Budget and become a Budgeting Boss in 2019!

Step 1: Find out where your money is going.

Before creating a budget, you need to know where you are at right now, so you can make changes. Be honest with yourself and take a true look at your expenses.  You might be shocked to see how much you are spending in certain areas, simply because you’re not paying attention.  For example, I was surprised to see how much I spent on eating out and treating my friends! As hard as this step may be, it is very important to have a foundation of where you typically spend money, so you can make a budget that is realistic.

Step 2: Calculate your fixed expenses.

When creating a budget your fixed expenses should fall into four categories:

1. Food: groceries and eating out
2. Utilities: cell phone, cable, electricity, etc.
3. Transportation: car payment, gas, insurance, oil change, etc.
4. Shelter: rent or mortgage payment and insurance

Yes, you have more expenses than this, but these are your “must pay” expenses that stay about the same each month.  This is where you start when building your budget, so it is important to know what these are before you begin creating your monthly budget.

Step 3: Create a budget!

The basis of creating a budget should follow this simple equation (income – expenses = money for goals).  We like to stick to the Dave Ramsey method of a “Zero Based Budget”. This is where you have a home or a place for every dollar in your budget, because you have allocated your entire monthly income to a specific location.  You will of course have your four fixed expenses, but you should also include money towards a “Sunny Day Savings”, your fun money, and a plan for your future. See my post on saving for a purpose to help you get started here.

Pro Tip #1: Tell your money where to go, instead of wondering where it went.  In other words, make sure you have a place for every single penny of your income.  If it’s not going towards an expense, it should be going towards your goals. You’re going to be a Budgeting Boss, so you need to be the boss of your money! 

3. b. Include the 3 important “Sunny Day Savings” in the expenses category of your budget.

A lot of people like to say they are saving for a rainy day, but I like to think of it as saving for a Sunny Day!  In other words, when you’re prepared for those rainy day occurrences they don’t seem like such bad days.  There are three different categories you should include in this fund

1. Standard Living Expenses: enough to cover 3-6 months of your fixed expenses.
2. Deductible Savings Account: enough to cover your deductibles.  This includes car insurance, home insurance and health insurance deductibles.
3. Oh Sh*t! Fund: Expenses you do not see coming, like a family emergency you need to book a flight for.  Other things in this category might include needing new tires, or emergency auto repairs.

Pro Tip #2: Most importantly, be realistic and allocate some money to have fun and enjoy yourself with.  Consider this a “Miscellaneous” category.  This would include things that come up in the month you might not have planned for, like a birthday party or a celebration.

Step 4: Test out your budget.

This is a living breathing process, its going to be ever changing.  Don’t be surprised if the first time you try out your new budget, there are some kinks in it.  Maybe you thought you only needed $50 for groceries, but you spent that in the first two weeks!  Understand that it might take 3 months or more for you to get it right.

Pro Tip #3: Use cash envelopes for things like groceries, gas, and your fun money.  This will help you see how much you have left, and if the budget you gave yourself for those categories is realistic.  There is also a psychological aspect to physically handing over money as oppose to just swiping your card.  Maybe you will think twice when you are handing over half of your fun money budget for a new handbag.  Or consider buying generic brand groceries instead of the name brand, so you can make your grocery budget last all month.

Step 5: Revise your budget.

After you test out your budget, make the necessary adjustments so you can be better the next month.  Make sure you set the next month’s budget BEFORE the start of the month. Like I said before, this is a process, so if your new budget doesn’t work for you, make adjustments!

Pro Tip #4: If you still feel like a Budgeting Baby, give me a call to schedule a FREE Financial Review.  I will sit down with you and walk you through the first 3 steps of creating a budget.  We can also talk about your “money for goals”, and see if your actions today are on track with your goals.

In conclusion, roll with the punches and adjust as you go, you’ll be a budgeting BOSS before you know it!

-Kristin Francy, Insurance and Financial Service Agent

See my take on creating a budget here.