I shared our family’s journey to becoming debt free a few days ago as an official kick-off to this budgeting series. Now I’d like to rewind and start with the basics of getting started.
There are two solid truths I have learned about budgeting:
- It’s hard.
- Your 1st (and probably your 10th) budget won’t work.
1. If you been living without a budget and are now starting to live within one, you will have a very steep learning curve. Telling yourself (or your spouse) that you can’t purchase something you would have bought in the past stings. We have found that the overall sense of peace we get from knowing where our money is going eventually far outweighs the feeling of sacrifice.
2. If you have never written a budget and never tried to live on one, please don’t expect that your 1st budget will be the one that will last you for the rest of your life. I have heard too many people say that they tried it once, failed miserably and gave up. Write a budget. Scrap it. Write another one. Make some changes. Possibly scrap that one. Write it again. We are still rewriting our budget, based on where we are at financially or what’s going on in our life. Give it life and let it breathe.
But how do I get started?
First off, if you are spending more than you are bringing in, something needs to give. Sit down and write out all your expenses, starting with fixed (utilities, mortgage, car payment, daycare, interest-carrying bills). These need to be paid first. Follow this up with other important items on your list that you can’t live without, like groceries and gas. The other “stuff” may have to wait for now.
Where is your money going?
If you don’t know where your money is going, track your daily expenses for a few weeks or a month. Find out what you are spending your money on. If you are disciplined, you could keep a money journal to track everything. If you’re like me and forget just about everything, Mint.com does a fantastic job of tracking your expenses through your debit or credit card and can give you a great summary of where your money is disappearing to every month.
Writing your budget
Figure out where you are going to keep your budget. If you are an Excel fanatic, start there. If you are like me and couldn’t create a formula to save your life, keep your budget in a basic Google Doc Spreadsheet. When we first started, our budget was hand-written. It took me about 2 years to finally give in and put it on the computer. It did really help me in the beginning to see it all laid out in front of me, to be able to physically cross off and highlight items made me feel very in control. Use Mint.com. It is a fantastic tool to not only track your spending, but help you start and create a budget.
Once you have a good idea of what you are spending over the course of a month, you can start to write your budget. Again, start with your fixed expenses. What must be paid to avoid late fees (or to keep your power on) every month? What is a necessary expense in your house? The most important thing to remember is that your basic needs must be met first.
Stay tuned for our experience with a “Zero-Based Budget”. I’ll share the different funds we contribute to each month and how we keep everything organized. It’s possible there might be a giveaway of the most amazingly fabulous cash envelopes ever made.
Update: Please feel free to check out my entire 2012 Budgeting Series.