When it comes to budgeting, you often hear me say, “A budget is you telling your money what you want it to do.” It is a plan for how you will spend your money each month. It can help you track your income and expenses, save money, and reach your financial goals. It is a dictator of the movement for your money.
While there are many different ways to create a budget, the simplest way is generally the one that works best. The most important thing is to find a method that works for you and can stick to it. I like a good spreadsheet; that is how I create and maneuver through my budget. However, as Helaine Olen and Harold Pollack say in their book “The Index Card: Why personal finance doesn’t Have to be Complicated,” if your budget is longer than a 3×5 index card, it is too complicated.
To start, take out a sheet of paper (or an index card), and write a list of your bills, debts, expenses, total balances, and minimum payments. When that’s accomplished, write down your take-home income at the very top of your page.
Here is where the spreadsheet comes in handy, go down the list subtracting the payment amount from your income until you have no income left. If you have income and nothing else to pay, congratulations, you have a surplus. However, if there are more bills and no more money, someone doesn’t get paid!
Now, if you are in the latter category, there is an order to pay for things. So there is no need to worry about how to prioritize.
First, take care of your four walls. Your four walls include Rent/mortgage, transportation, utilities, and food. As long as you pay these, you have room to breathe!
Second, list your debts in order of total balance from smallest to largest. Then go down the list, paying the minimum balance on everything.
Third, do you have any bills left? Pay them. Do you have money left? Put it all on your smallest debt.
Rinse and repeat. Every month!
Give yourself a couple of months to see where you need to make adjustments. Here are some tips for moving forward:
- Put aside $500-$1000 as soon as possible. If you have a surplus, put some space between you and a bad day. If your goal is to get and stay out of debt, having this baby emergency fund is the key to handling the little things that pop up unexpectedly.
Some would argue this suggestion, stating you should have a credit card for this purpose, but trust me, as part of your budget, you want to set aside $500-$1000 in cash for the unexpected. The last thing you want when you are going through a difficult time is to increase your stress with debt.
2. Be patient with yourself. You will not get it right the first time! It doesn’t matter if you are new to budgeting or if you are a pro at it. Don’t expect to get it right immediately. Take note of what didn’t work, fix it, and try again next month.
2. Do not overspend. When unexpected things come up, you cannot spend money you do not have. At the end of the day, money in must equal money out. If something comes up and you do not have your “baby emergency” fund in place, you must take mine from another category on your list. Do not use your credit card as a surplus income!
3. Set a budget goal. This could be saving for a down payment on a house, retirement, or vacation. Or paying off a particular debt. Once you achieve your goal, reward yourself before moving to the next goal. This will keep you focused and moving forward.
4. Stick to the plan. One of the biggest complaints about budgeting is that they are difficult to stick with. Do not give yourself the option. Ask yourself what is not working and work toward finding a solution rather than giving up.
5. Review your budget regularly. This will help you make sure you are on track to reach your goal.
6. Automate your budget! Once you get your budget to a point where it is working, automate it and take yourself out of the equation. You are the biggest hindrance to your financial success. If you remove that roadblock, nothing is standing in your way of success.
Creating a budget can seem daunting, but it’s worth it. It is the basic building block to help you reach your financial goals.
As a financial advisor, I can help you create a plan and help you chart a course toward your financial future.
If you’re ready to take control of your finances, contact me today for a free consultation. I’ll help you create a personalized financial plan that will help you reach your goals.
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Set realistic goals. Don’t try to cut back on all of your expenses at once. Start with small changes and gradually work your way up to bigger ones.
Automate Everything! If you don’t have to think about it, the chances are better that it will get done. Make the decision, automate it, and walk away! You can do this with paying bills, savings, and more. You can set up automatic transfers from your checking account or set up an automatic bill payment for each expense.
Avoid impulse purchases. Before you make a purchase, sleep on it. Ask yourself if you really need it? If you can wait 24-72 hours before making the purchase, you’ll be less likely to buy impulsively.
Reward yourself. When you reach a financial goal, give yourself a small reward. This will help you stay motivated and on track. An example of this would be taking a break from your plan to save and pay cash for a vacation. Then, pick it back up when you return.
Creating the budget is the hard part. Once it’s written, sticking to it is what can be challenging, but it’s worth it. A budget can help you take control of your finances and reach your financial goals.
Corey Stokes 
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