Where to start when doing a *gulp* budget

money-market-12Oftentimes, people don’t know where to even start when doing a budget. I, regrettably, was one of them. And then I sat down and just started one baby step at a time. And it worked. You may feel overwhelmed at first, but the key is to UNDERSTAND the difference between necessity and want. What you need vs. what you want and making your money work for you – rather than allowing it to control you. There is no need to live paycheck to paycheck if you can get your money under control! Maybe you need to live tightly. Maybe you need to cut out luxuries. Maybe you just need to adjust your necessities to reduce the costs. Whatever works for you – you need to figure it out! Let’s move ahead with “where to start when figuring a budget”. This is pretty easy, and not in depth. But I will have more in depth articles later!

One thing that I need to add in the beginning is that you NEED to treat yourself with some of your money. Once a month, do something nice. BUDGET for it. But do something nice. Go out to eat (cheaply! Use coupons!), go to a movie (NO POPCORN, SODAS, OR CANDY!) or buy a new outfit. DO SOMETHING NICE. Otherwise you will snap and spend money you don’t have and have to start all over. Just don’t go into debt. Allocate $50 a month for something for yourself/family!

First, you need to figure out how much income comes into your household each month. If you have fluctuating income (i.e. overtime, commissions, etc) only budget on your LOWEST checks within the month. That way if you don’t get that overtime or commissions you won’t be short. So if you get paid bi-weekly (twice a month), figure your lowest 2 paychecks from the past 3 months. If you have two earners in the household, do the same for both. That’s going to be your jumping off point for the budget.

Now, take all of your monthly NECESSITIES (this includes: household bills – utilities, groceries, rent/mortgage, car payment, insurance, gas money, FOOD (NOT restaurants and/or fast food) – anything that you get or pay every month) – this does NOT include “wants” that you may “think” are “needs”. Buying a new grill is not a need – it’s a want. Unless that is the ONLY way that you have to cook. A new flat screen TV is NOT a need. It’s a want. Cable is NOT a need (I may face opposition on this, but truthfully, it’s not a necessity and no one will die without it if you need to cut it). Figure in your needs and that’s where you start the budget.

Whatever you have left over – is your “other” money. Always make sure that you take care of your NECESSITIES before anything else. Your necessities include your house, a vehicle, clothing for you AND your children, and Food. Everything else is NOT a necessity. It is something that you could possibly cut out if necessary! (Yes, this includes – cell phone, haircuts, cable, new electronics, video games, online gambling, fast food/restaurants, etc). Once you have differentiated between your necessities and your wants, you’re in good shape.

That’s the tough part. Seriously. It is. Sometimes we live on such a loose budget that we feel like eating at McDonald’s every day or 2 times a week is a necessity, but in reality – it’s not. We can cook at home. We feel like cable is something that every household needs, but in reality – it’s not. We can play board games for entertainment or talk to one another. What about reading a book or taking a walk? Spending time with your family? IS a cell phone necessary? Sometimes. But you don’t need to put yourself into debt having one. Get a pre-paid cell phone and use it for an emergency until you’re caught up on bills or until you are comfortable with the amount of debt/bills that you have. These “luxuries” are things we now feel are necessities, but they aren’t.

Now, once you have figured out what your necessities are, and you have your “left over” money – budget it. Tightly. I’m talking so much that you have a $0 balance at the end of the month. What?! $0 balance? Yes. Every bit of your money should have a place to call home.

How do you do this?

Simple. Take your base pay. Put it at the top of a sheet of paper. Take out your rent/mortgage. Subtract it from that top amount. Take out how much you REALISTICALLY spend on gas/food. Subtract it from the total above. Take out how much you need for utilities/bills. Subtract it from that amount. If you want to put back $50 for haircuts (luxury, not necessity), subtract it from the above amount and keep going until you hit $0. Every penny should have a place to stay.

Check out this sample… This is not a real sample, but more of a “this is how you should do this!”

sample-0-budget1

This is a GREAT method because it prevents you from overspending. If you have a $55 need for gas for the week, and you don’t have but $50 budgeted. Uh oh! The first few times you’re NOT going to get this right unless you are a born budgeter and have done this before. You’re going to have some flubs. Some overages. Some things that you don’t expect. That’s ok. Don’t get discouraged. Adjust until you find the balance that works for you.

Next, you want to figure out how you’re going to prioritize the overtime and commissions IF you do get them. For example, if you have overtime and you want to pay more on your student loans, credit card bills, car, etc… prioritize in order of importance. But ALWAYS take care of your necessities first and foremost and your DEBTS MUST BE PAID OFF BEFORE GETTING ANYTHING THAT YOU “WANT”!!

What I recommend is that you pay on your debts with ANY and ALL overtime, commissions, yard sale proceeds, etc. Seriously. If you are finding that you’re on a tight budget because you have credit card bills every month, or that you have loan payments that bog you down and frustrate you – pay them off first. One at a time. Check out the entry for “Knocking out your debt – one at a time”. It will show you how to take any and all “extra” money and pay down your frustrating debts!

Start with the small one. Knock it out. Pay minimum on everything except that one that you’re attacking. Then, do the next one. Knock it out. Put the money that you paid the first one off with onto the next one. SO if you paid $20 a month for 5 months on the smallest one, and $15 minimum on the one above that one, take that $20 and add it to the payment on the next smallest one. So instead of paying $15 on the “next smallest one” (which is now the smallest one because one is PAID! YAY!) pay $35 until it’s paid. EVERY extra cent that you have should go onto that smallest bill. If you can pay $50 instead of $20. Do it. Don’t go out to eat for 2 days and just get your debts paid. YOU WILL FEEL SO MUCH BETTER. Trust me! And you won’t have all of these nagging bills on your heels. Check out the post “Paying off debts – smallest to largest”

Before you realize it, you won’t be nagged by small “nickel and dime” bills and you’re going to feel a bit of freedom.

PS – don’t forget to save some each month for birthdays and Christmas! You’ll thank me later for this tip.

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