As “No-Buy” Month winds down and everyone begins to reevaluate spending choices, a conversation about budgeting seems appropriate. Creating a regular budget is your ticket out of debt. Period! You can dress it up. Call it a spending plan. Do whatever floats your boat. Bottom line, operating on budget makes your money behave. Without it, you have a finger in the wind approach to managing your finances. Like my favorite quote states, “When you know better, you can do better.”
While learning to live on a budget is not particularly difficult, it does require practice and will take some adjustment. However, we believe that a budget is the best way to give yourself a raise without getting a second job. Rather than limiting yourself, a budget generally opens your eyes to opportunities. When your income and expenses are in black and white, you make better spending decisions. Think of a budget as the guiderails on the highway of your journey out of debt. Rather than impede your progress, a budget will keep you from going over the cliff.
Convinced? Let’s talk about how to construct a budget which is necessary to pursue your debt free dreams.
Track Your Spending
Your budget will only be as useful as the information used to create it. Try a tracking exercise for at least one week. This should give you a general idea of what you spend. Reviewing your bank account history will also identify of how money leaves your pocket. Be honest. Include all expenditures; from routine bills to random afternoon snack runs.
Your tracking tool is a matter of preference. I used Excel. Some use pen and paper. Mint.com has a free app for the more sophisticated among us. CNet.com has a very useful review.
Tracking is an essential step in gathering the information needed to build your budget. Don’t skip it. Remember, garbage will produce garbage out.
Create Your Budget
Your budget creation tool is, again, a matter of preference. I like Excel because it’s simple and something I’ll use regularly. Again, Mint.com is a free tool. It will request access to your accounts. A budget should be done at the beginning of each month (or pay period if you prefer) – looking forward. Categorize all money you plan to receive and spend using the following sections:
Income: Include anything that brings dollars into your household budget.
Fixed expenses: Monthly outflows that do not change. You can expect each month to pay the same for rent or mortgage, car note, insurance, etc.
Variable expenses: These are patches of quick sand lurking to bust your budget. Groceries, transportation costs, clothing, and entertainment are examples of variable expenses that can be harder to manage. Use totals from the tracking exercise to create allotments for these areas.
Subtract your planned expenses from anticipated income. If the result is positive, the extra can be used to dig out of debt and then build savings. If it’s negative, you should cut expenses and look for ways to generate additional income. Either way, you now have a plan for you money moving forward.
Post Your Budget
Initially, I put a lot of time and effort into making a fancy spreadsheet. It was thorough. It was complex. It was impressive. It was also usually buried in a trail of folders on my computer and forgotten for months at a time. Print out your budget each month. Post it in a secure yet visible place; the refrigerator, bathroom mirror, or maybe a closet door. This small step will help keep your budget in focus.
Review Your Progress
Save your monthly budget printouts. Leaf through your financial history as a reminder of the progress made toward your goal. Sometimes, this is enough motivation during the long months (or maybe years) required to become debt free.
If you’d like more help creating your budget and ultimately crafting a plan to eliminate debt, join the Debt Free Divas’ newest challenge – MISSION POSSIBLE . This innovative approach to dumping debt will help you prioritize financial matters, encourage you to accomplish goals, and connect you with a supportive, like-minded community. Debt freedom is absolutely possible.
“MISSION POSSIBLE CHALLENGE”
by Debt Free Divas
Bio: Toni Husbands is a financial coach and co-founder of the Debt Free Divas. They help men and women struggling with finances become debt free. Visit them online @ www.debtfreedivas.org.
Thank you so much for contributing Toni! This was a great way to wind down “No Buy Month”!
• Please comment with your budget ideas!
Header Image credit: sqback / 123RF Stock Photo