I like to think that I can do everything in my head. It’s a bad problem.
I also like to think that I can see into the future which is an even bigger problem.
What do I mean?
Okay, let’s say I have $200 in the bank and it’s the 6th. I’ve already paid rent and the car so my two largest bills are out of the way. The rest of the month is laced with smaller bills that I take care of as they come alone.
I know that I should save that $200 to pay the phone bill in two weeks, but I want sushi today and I know I get paid in a week. So I go out and buy me some nice sushi. Not $200 worth mind you, but some super nice sushi because I know the phone bill is covered.
The problem is this starts what I call a financial avalanche.
I was able to cover the phone bill, but then I was a little bit short on another bill which I’ll have to cover with the next paycheck. Now I can’t take my wife out on date night like I promised her a month earlier.
That Vegas trip with the boys? Still doable, but I’m a lot shorter on the vacation budget than I had hoped.
A lot of problems occurred simply because I thought I could keep track of everything that needed to be paid in my head and figured that Future Me would figure it out.
Future Me continues to look back at current me and wonder what the hell I was thinking.
I’m sorry Future Me, I wasn’t thinking about you. I was being selfish.
A Budget Doesn’t Have to Be Limiting
Every financial guru that I’ve spoken with has told me that I need a budget. The problem is I hate that word. I hate that word with a passion.
It’s so limiting in my eyes. Having a budget always meant that I could get what I want when I wanted it. What’s the point in making money if I can’t spend it on the things that I want?
Of course, I was looking at this with the wrong mindset.
A budget is more freeing than not having one. A budget lets me know that all 17 bills are covered and if there is some left over then I get to be creative with that.
If there is no money left over then that happens sometimes and it’s not frustrating at all. It is freeing.
It is freeing because it means I still don’t have to worry about if all the bills are paid. It means I know that there is still food in the fridge and that I can drive around town with a tank full of gas.
If every month that passes leaves me with no extra money then I need to figure out ways to make a little bit more money so that I can extend my fun a bit.
That’s not a problem.
The point is a budget shouldn’t make you feel like your living your life with handcuffs. There are necessities that we put integrate into our lives and they must be paid.
- Internet…gotta have Internet
- Cellphone…gotta have my digital newspaper
Life with those things is certainly more enjoyable than life without those things. I choose to keep those things in my life and to do so requires money. It’s just the world that we live in.
A budget ensures that these base necessities are covered.
Of course, there are other things like student loan payments and credit card bills that need to be accounted for, but a budget ensures that my base necessities are covered.
From there I can continue to build up.
A Budget Relieves Mental Exhaustion
I don’t know about you, but money places some unwanted subconscious stress on me. Every day there are probably 100 different thoughts that pop up into my head about money.
That means there are 100 different moments in my day that I don’t get to think about unicorns, donuts, or Star Wars.
That’s not fair to me and my mind.
Will I have enough for dinner tonight?
The Internet is about to get turned off, how can I get money for that?
Bob wants to go out for drinks on Friday should I try to find a place that as 10-for-1 specials?
The dream is to have so much money that I never even have to think about it ever again, but until that happens I need to find ways to limit the stress that it can cause.
That’s where a budget comes in.
Creating a Budget
So how do you even begin to craft a budget? Do you just throw some numbers around and hope that you reach them?
Of course not. Don’t be so silly. Here is a step-by-step breakdown on how you can get your budget ready.
1. Figure Out Your Income
You can’t budget without knowing how much you have to budget. For most people, this is pretty easy because you know exactly how much you are getting each paycheck.
For those that work at a job based on tips or lots of overtime then figure out the minimum you always bring in.
If you’re working odd jobs all of the time then how much are you trying to get each month?
If you’re an online freelance writer and you always bring in at least $1,500 a month, then that is the base for your budget.
2. Create a Monthly Budget Outline
Some people like to write this down on paper, but I prefer to use Google Sheets since it is always around. I can use it on my desktop, laptop, phone, and tablet. The only time I don’t have access to it is when I don’t have anything electronic around me.
At the top of the budget write down the income that you figured out in Step 1. This is your dependable income. It’s always around (well mostly, things can happen).
List the days that you get paid.
For instance, if you are always paid on the 1st and the 15th then list those two dates, but give yourself some space between both for this next part.
Next, list every single bill that you need to pay, but list it under the pay date that it falls under. Internet bill on the 3rd goes under the 1st paycheck and phone bill on the 21st goes under the 15th paycheck.
As you can see, depending on how often you get paid will determine if you need to create a new sheet each month or can stick with the same one.
3. Set a Grocery Budget
This might be the hardest part of doing your budget because your grocery bill can fluctuate. Maybe you only go to the grocery store once a month or maybe you go every single week.
I never expect anybody to know exactly how much they should budget for their groceries right away. Usually, it takes a bit of research.
If you use a debit or credit card each time for groceries then just go back the past couple of months and write down how much you’ve spent each month on groceries.
Once you have a number, subtract that from your income.
4. Going to the Bill Swap Meet
Look at your bills and see if there is any bill that you can replace with a cheaper alternative.
For example, when I got sick of paying $160 a month for cable and Internet, I asked my wife to write down all of the shows she had to watch on TV. She wrote down 10 and I found that 9 of them were on either Hulu or Netflix so we got rid of cable and now just pay $19 a month for Netflix and Hulu (we go with the ad-free version).
Did it make sense for us to pay an extra $100 to sit on the couch and scroll through 100 different channels before realizing that we’ve been doing it for 3 hours and hadn’t picked anything?
Spend the next couple of months looking at bills that can be replaced. Your cell phone bill is always a big one and there are a lot of different carriers competing with each other so you should always be able to find a good deal.
5. Create Your Funds
Fund is such a cool word. For some reason, I think it’s a word that only rich people use because only they have enough money to start them.
Take your wife to Rodeo Drive and hope she comes back in 3 hours or less Fund.
The reality is that we use the word fund here for purchases that happen infrequently.
- Oil changes
- Car registration
Notice that these are things that can fall under the list of necessities. They just don’t happen as often as your monthly expenses.
List these purchases down and try to be realistic about how frequently they occur.
Setting aside a weekly clothes budget is probably overdoing it. Don’t worry, you’ll be able to have one one day.
This is where you can also set aside for other things like date night, sushi night, date night, club night, bar night, date night, and things you do for entertainment. However, these go towards the end of priorities so only list them if you have room in the budget.
The easiest way for you to manage funds is by having multiple bank accounts. I know this sounds crazy, but with the advent of online banking, it has become much easier. You can have a fund for Vacation and one for emergencies.
The banks don’t care as long as they get to hold the money.
6. When Are You Retiring
My parents grew up in a time where you knew you would retire at 65 and have social security to help you the rest of the way.
Those times are gone.
Now it’s on you to figure out your retirement.
Figuring out your retirement is one of the most important things about creating a budget. You aren’t saving money just so you can have a nice bank account number when you die. You are saving money so that at some point you can enjoy life just a bit more.
There really is no better time than today to start planning for retirement.
7. The Little Things
Now it’s time to think of the little things that you need to keep life flowing. You need shampoo, but you don’t need it that often. You need gas, but depending on how much you drive it can fluctuate when you get it.
Budget for fuel first if you have a car and then budget for the things you need to run your household.
It can be hard to set the perfect budget for these things because there are never set dates on when you need them next. One of the cool things that you can do is create a stock room and restock when things are getting low.
Some of you might put most of these items under your grocery budget and that’s fine. Keep them there and continue to go about your business.
8. Set Calendar Budget
There are analog people and there are digital people. I’m a digital person so I do all of this in Google Calendar because I can sync it across all of my devices.
However, you might be an analog type and like to have a nice big, physical calendar in front of you. Nothing wrong with that at all.
In your calendar, you are going to write down all of your pay dates. Remember, life changes unexpectedly so make sure you write them down in a way that allows you to change them later.
9. The I Have a Life Budget
For me, the hardest part about budgeting, or saving money in general, is that I like to have fun. If I want to go out dancing with my wife then I’m not going to let a budget stop me! This is also why I got myself in the situations that I did time and time again.
You might also have bigger fun things planned like a trip to Europe. List all of the fun things that you want to do in the future and sort them by importance.
For example, visiting Iceland ranks higher than going to Disney World for the 59th time.
Next, decide how strict are you going to be with your budget. Do you make sure to never go over or are there occasions when you know that if you don’t find a dancefloor and a margarita your head is going to fall off?
Remember that a budget isn’t supposed to be handcuffs. It’s supposed to show you a path to the lifestyle that you eventually want.
10. Stay Updated
Things change. Life has twist and turns. In no way can you set a budget on January 1st and expect it to be the same on June 15th.
You finally got that raise you deserved or you decided that enough was enough and began a side business.
The point is, continue to update your budget as time goes on.
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