Steps To Budget Like A Boss
I’ve read studies that show that about 30% of people have a written budget, but only about half of those people follow it through consistently. The problem is that we all know we need to budget, but we just don’t know how to get started. Trust me; it’s a lot easier than you might think. I encounter people all the time who are misinformed about what a budget really is. So before we review the keys to budgeting like a boss I’d like to tell you what a true budget isn’t, and what it is:
- A true budget does not prevent you from spending on the things you enjoy, but prevents spending on the things you don’t really care about.
- A budget isn’t for low-income households, but for every income level.
- A budget isn’t about tracking where your money went, but about telling your money where to go (before you even get it).
Think of a budget like a map showing you where you’ll drive. Not a map showing where you’ve been. And looking forward is the the way you’ll better your financial future.
1.) Ditch the debt.
There’s no way you can move forward if you keep falling back on the credit card. Ditch the credit card and work proactively with a prepaid card. It allows you to do everything the credit card can do except.
With prepaid everybody is approved. No bills. No worries.
2.) Write it down!
If you don’t visualize your budget, it isn’t a budget. It’s only a budget if it’s tangible, visible, real.
3.) Know how much money you take home.
Don’t laugh. This one seems silly to some people, but believe it or not many people actually don’t know what they take home in a given month. Sometimes there’s merit to this as many careers (like commission jobs) have income highs and lows.
Not knowing what you take home compounds your finance difficulties because when things get tight you fall back onto the credit card to get through…all because you didn’t know that you shouldn’t have splurged on that impulse weekend trip this month.
It always costs more than you expect, doesn’t it?
If you earn an inconsistent amount, start budgeting with a safe estimate of what you’ll take home for the budget period (usually monthly). Go ahead, dig up those last pay stubs. Check it out. Write it down.
4.) Make a list showing where every dollar will go.
Now that you know (approximately) how much you’ll be taking home, let’s plan where every dollar will go. Don’t worry if you can’t thing of everything in one evening. Your budget will take a few months to perfect. Remember, you’re on a journey. Budgeting, like any skill, is a continual process of improvement.
I use a different line in my spreadsheet for each different expense. Start by listing non-optional expenses like mortgage/rent, food, etc. Then move to semi-optional things like memberships. Lastly, add in things you want like new clothes or a vacation fund.
Importantly, never forget to budget these three:
- donations (helping others),
- saving (emergency fund, retirement, etc.), and
- paying down any existing debt.
5.) Monitor your spending to prevent overspending on each category.
This is where many people struggle, but they need not! Maybe you’re old-fashioned and you choose Grandma’s method: the envelope system. Cash + Envelopes.
I’m amazed how many people I come across who budget with the envelope system. It’s foolproof. You take out your money and put it in the correct envelope. Nothing left in the ‘clothing’ envelope? Well, you spent your money. Now you wait until you budget more money for clothing in your next budget? Didn’t buy any clothes? Now you can spend even more next month when you add to your clothing budget.
Not only do prepaid cards help with budgeting by eliminating credit card debt, but the mobile apps for many prepaid cards are outstanding. Rather than cash + envelopes, a prepaid card with its app allows you to track your spending by category with ease. Of course, it’s also more secure than cash and allows you to shop online.
6.) Stick to it every day
A budget is a living, breathing friend. You need to spend a little time on it every day in order to understand it. Life changes and things come up. You can adapt your budget accordingly. I usually spend about 5 minutes a day looking over my budget and my bank account to ensure I’m on track. You’ll find very quickly that the fear you felt of getting started has all but disappeared…and you’re left with peace of mind and a feeling of empowerment.
You won’t even be finished your first budget before you realize how much money was going to things you didn’t want. Not only that, but you’ll start to see that debt shrink down faster than you imagined and you’ll be confident with each and every purchase you make. Goodbye guilt, hello freedom!