What happens when you hear the word “budget”? Do you get shivers down your spine? Do you start to cry even though you are grown adult? This word is known to cause those types of reactions. I will admit when I decided that I was going to get rid of my debt so I could live comfortably and found out creating a budget was the first step, I freaked too. A lot of excuses started flooding my brain. All silly things like “I suck with numbers”, “I’m not good at math”, “I don’t want to have to make sacrifices”, etc. These are all just cop-outs…excuses. This is math you learned in the 6th grade. If you passed the 6th grade, you can create a budget. I’m a college graduate with a bachelors degree…I can do this, and so can you! It’s actually not as bad as you think. I used to think that way too, until I really got serious and buckled down. Just give it a chance and your financial stress will go away.
Budgeting Beginners 101: What is a Budget
A budget is an estimate of income and expenses for a set period of time with designated categories. Most budgets are similar, but not created equal. If you were to compare budgets with some of your friends, you would notice that some of the categories are the same or very similar. But their will also be differences. The income is going to be different for obvious reasons, we don’t make the same income. Every household is different.
Another difference will be categories. Your friend might have a birthday gift to plan for in that particular month, where you don’t. Budgets should be adjusted monthly. Maybe your food category combines groceries and eating out, but your friend has them separate. Your budget should reflect what works best for you and remember all households are different. The most recommended way to budget is called a zero-based budget.
A zero-based budget follows the idea that your income – expenses = 0. This doesn’t mean that your bank account will be 0, it means by the time it’s pay day- you have already assigned every dollar to be spent somehow. You told every scent and every dollar where to go. Instead of letting your money tell you where it should go, you are telling it where to go. You are in control and know where your money is going.
Budgeting matters because it doesn’t matter what your end game is (getting out of debt, saving for college, planning for retirement, paying off the mortgage, or investing), you need a budget. Tell your money where to go, so you can reach and achieve your goals. A budget is your key to success. If you listen to the Dave Ramsey show on YouTube or even the radio he always asks his debt-free screamers “what is the key to getting out of debt?” and most of them answer budgeting and communication.
How to Create a Zero-Based Budget
The first step to creating your zero-based budget is to list all your sources of income for the month (your take-home pay). Then list all your expenses for the month. Start with the necessities (food, shelter and utilities, transportation, and clothing). You want to make sure the rent/mortgage is listed first before you budget for something less important such as a gym membership.
Next list all other expenses like entertainment, date nights, school supplies, debt, etc. Some expenses will be monthly, others will be one-time expenses. Things like birthdays gifts, special events such as wedding or graduation gifts are all one-time expenses. With that being said, you will have to adjust your budget each month and you are set to go.
It’s important to make sure every dollar goes somewhere. You must have zero dollars at the end of the month. If you work on your budget and have $100 left over that you didn’t assign, your budget isn’t finished. Assign that money somewhere. Save it or spend it that’s your call, but budget it some where. Think about where you are financially, what your situation is, and let that guide you to a wise assignment. Do this each month before it starts. As I said above, it gets easier with time.
Ways to Create Your Budget
If you don’t want to use pen and paper, create a budget using a spreadsheet or try Dave Ramsey’s website or app Every Dollar. It’s FREE and available for Iphone and Android. Don’t let plugging in numbers scare you. The app will do everything for you- math included! It also makes it extremely easy to copy your budget from the previous month. All you would have to do is adjust the categories for that month’s needs. It’s so simple! I use Every Dollar and love it. I plan on writing a post just on Every Dollar soon, so keep your eyes open for that post in the near future.
Also know that just because you are on a budget doesn’t mean you have to avoid buying things you want. Budgets actually do the exact opposite. They give you permission to buy these things and tell you whether or not you can afford it. Everyone should be on a budget. It doesn’t matter if you are a millionaire or not, you need to tell your money where to go.
Where ever you find yourself in the journey of life, you can never go wrong with a budget.