The hardest part about budgeting is actually sticking to it and making it work. It took us three years to figure out the best way to actually stick to a budget, and I want to share with you the 4 steps we have created to a budget you can stick to. We share many budgeting tips and strategies in our FREE e-Course “The Financial Renovation” – you can sign up HERE!
I recently did a reader survey, and asked a question about what you would like to learn from me in 2016 – a large majority of you wanted to know how to actually stick to a budget. This is a common problem we see, because budgeting can be hard work – but well worth the sacrifice.
Practice PROSPECTIVE budgeting. This means that instead of spending all month tracking every transaction, you plan the month out BEFORE it even starts. In this first step you write down all of your bills that cannot be negotiated for the next month. These bills are usually your mortgage or rent, gas/electric, water, credit cards payments, student loan debt, etc. You would also include minimum debt payments in here.
Once you have all of your non-negotiable bills laid out, you are going to move onto Step 2.
Get out some pen and paper and write down big expenses that will occur throughout the year that you need to save for now. Christmas is a biggie (we put away $50 every month for Christmas), and taking a vacation in the summer might be too. Are you making any big home repairs in the summer? Do you have an emergency fund in place? Are you planning to making a large car repair every couple year? The more money you use to fund these expenses (planned or unplanned), the better.
How much to budget? Simply estimate when the expense will occur, and then track back to today. Divide the amount you need by the number of months preceding the expense and set some money aside in a separate account.
You can pool this money, or you could keep track of everything separately.
Write down all of your other monthly bills. These are the bills that you pay every month, but might not be 100% set in stone. For instance: Cell phone bill, cable bill, groceries, gas, date nights, babysitters, etc. One of the primary goals of budgeting it to spend less money, so it is important to focus on these types of expenses because often, they can be reduced without much effort. If you find that there are some items that you can do without, this is when you will cut those bills from your budget. Call around and try to negotiate your cable price or learn how to coupon – try every way to reduce your bills (Read – 5 ways to eliminate expenses from your budget.)
Often, the easiest place to see an immediate savings can be with your grocery bill. That is why I focus so much on saving money at the grocery store and meal planning here on ‘I am THAT Lady'. Food is the one category in your budget where you can spent 50% less TOMORROW (with the right teaching)!
And DO NOT FORGET to add a miscellaneous category! It's what will make this whole thing work. You need to set aside a certain amount of money every week for random expenses, it can be $10 or $100 – whatever works for you. If you want to meet a friend for coffee, take the money out of the misc category. If your kids have a last minute field trip pop up, take the money out of the misc. category. You will see how this creates a buffer between you and life – and helps you to stick to and survive on a budget without feeling like you are trapped.
Next, you need to account for the things that make this month different than other months. Things like birthday presents, wedding gifts, field trips for school, vacations etc. Write those down as well for the next month.
This step is where your monthly budget will differ every month. That is why it is super important to budget every month for the next month. This way you can budget around what is needed and expected, and you can be successful at budgeting.
Then make a plan and stick to it! Once you have all of your bills planned out, and money allocated to where it goes every month – now you are ready to start the budget! We plan ours the last Sunday of every month – then take cash out for most of our flexible expenses, such as groceries and misc spending. This cash is what we have to spend for the week, and when it's gone, it's GONE! There is no debit card to turn to or credit card to fall back on – you have decided that it what you are spending money on, so you need to exercise self discipline. That doesn't always come easy, and for us it took us about 3-4 months to actually be able to stick to it for the first time. Keep in mind, that your results may be the same as ours. It may take you a few months to get the numbers right and actually stick to it – the most important part is that you don't give up.
Budgeting can be fun – it is basically a way for you to setting boundaries with your money. Think of budgeting as a fenced in yard when you have small children. That fence protects your children from roaming outside of the boundaries of the fence, which makes them safe and secure while still allowing them to have fun. A budget is the same thing for your money – you can still have fun, but only within the boundaries that you have set. We find it freeing to know that our money have already been talked about, and we have a plan for it during the month. It makes us feel safe and secure, and gives us a sense of freedom to focus on other things during the month.
If you are still wondering how this all works, then you gotta check out this free e-course. I know you can make some AMAZING progress in 2016!