When it comes to your money, are you out of control, stressed, overwhelmed, or uninspired? Do you want to have a feeling of security, that everything is taken care of? Is there hope that you can make your future goals possible?
A budget is just a plan for your money. I guess I’m a nerd, because I love to make a budget. I’m all over it when someone asks me to help them get their money troubles straightened out. People usually seem embarrassed to ask for help, but my enthusiasm gets them past that quickly.
If you work hard for your money, you want it to work hard for you in return. And YOU are the only one in control of what happens to your money. Oh, it may seem like the bill collectors are in control, but you are the one that gave them that right when you sign up for those payments. Now, it’s time to make sure that those choices are still what you want!
How to make a budget and take back control of your money
Here are the steps I take each time I start a new budget with someone.
Step 1: Take stock of your financial picture now
First, collect all your financial data together and make a list of the following information:
1. Income from all sources and dates received each month
This could include wages, tips, side hustles, child support, alimony, bonuses, etc.
2. Monthly expenses and due dates each month
Include all payments and expenses such as rent/mortgage, car payments, credit cards, child support, alimony, cell phone, utilities, insurances, cable, Netflix, student loans, gas, food, etc.
3. Annual, semi-annual, and quarterly expenses and due dates
Divide each of these amounts by 12, 6, or 3 to come up with a monthly amount to put into a sinking fund. These expenses could include insurances not paid monthly, subscriptions like PlayStation Live or magazines, membership dues, software, property taxes, etc.
4. Personal loans or debts in collections and totals owed
Any expenses that do not have a due date, but are still owed, can be added here. These might include loans from family or friends, deferred payments, such as student loans, or debts that have gone to collections.
What’s the Damage?
Now, add up all the monthly income amounts and all the monthly payment amounts (remember to include those items from the annual payments and personal loans) and hopefully your total payments are less than your total income! If so, go on to the next step. If not, time to start eliminating some expenses, or getting creative by adding more income.
Step 2: Set the Dates
Time to divide up all of your expenses into each payday, whether it’s weekly, every other Friday, or monthly. This is a little bit like working a puzzle, but you will need to find a place for each expense to fit before its due date. You can do this!
Make a calendar with the bill and amount showing on the due date. Also, add your income to show on dates your get paid.
Some paydays might cover all the expenses for the following week, but if not, you will have to pull from the previous week. So try to work it out to make everything fit in before its due date. Don’t forget about your food and gas money.
Ultimately, it is preferable that your housing costs are 25% or less of your monthly take home pay. That way the last paycheck of each month can be used to pay your next month’s rent or mortgage.
Other expenses you may want to add are giving and saving. Some suggested percentages for these are giving 10% and saving 15%. If you are giving or saving yet, you can make these goals for your future budget.
Step 3: Savings and Goals
The first type of savings you need in your budget is sinking funds.
Sinking funds are like little savings buckets where you collect a bit of money at a time in order to pay some future cost later without any stress. For example, your insurance premiums may come due every 6 or 12 months. Sometimes you can set up monthly payments, but it always costs you more that way. If you can throw some money into your bucket every payday, you can save the extra fees when you pay it all in one lump sum.
You can start sinking funds for things like co-pays for doctor visits, upcoming braces for the kids, a plane ticket to a family reunion, or property taxes that are billed once a year. Sinking funds can become an addiction after you experience the lack of stress when the event arrives that you’ve been saving for!
Goals are great, too.
One awesome goal that really makes all other goals easier to accomplish is to become debt-free. Make a plan to use whatever extra money you have after you expenses are paid to pay down debt. Use the debt snowball or avalanche plans to help you get there faster.
Make some future goals and keep moving forward with your budget. Every goal you reach will motivate you to keep working towards the next one.
You are in control now
Just start. Make a budget and give yourself at least 3 months to make adjustments and get it working right for you. It takes a little practice, but you will be so much further ahead than you are now.
Be amazed at the progress you are making once you are really in control of your own money. It’s yours, so learn how to keep it. Stop giving it away in the form of interest and late fees.
Each of these steps on how to make a budget are topics on their own, but this should get you started. Once you have all the facts listed on paper, or on a spreadsheet, you will be much better able to take control of your money and make it work for you.
Give it time
It takes about three months of living on a budget to work all the kinks out, so keep adjusting it until you get it working right for you.
I know many people are afraid to make and live on a budget, but it is the first step to a great future. You will no longer wonder where all your money goes. And five years from now, you won’t be stuck in the same rut you are in now. Maybe you will still be eating Tacos every Tuesday, but your financial picture will look a lot different.
Start setting goals and integrating them into your budget. Adding goals to your budget is the best way to motivate you to maximize your money. Let me know how I can help!