We’ve been talking about budgets for a while now. So far in our Build a Better Budget series, we’ve talked a little bit about why we even bother creating a budget, about how the budget is more of a seat belt than a shackle, and about the budget being a great communication tool. I hope that our conversations have gotten you thinking about the possibility of creating your family budget. Be sure to sign up for my free email updates or for my RSS feed so that you don’t miss out on any of the conversation.
Now that we’ve had some discussion on the topic of budgeting, let’s take a look at the how-to part of budgeting. For a long time, I thought that a budget had to involve spreadsheets and columns and formulas… OH MY! I dreaded even thinking about planning out where our money was coming from and where it was going to.
We’ve really simplified things though. Instead of spreadsheet, why not just use a piece of paper? List all of your income sources in one column. List all of your expenses in another column. Take a look at what will be coming in and what will be going out. Are there major discrepancies? It was pretty eye-opening for us to do this the first time, so be prepared for some surprises if you’ve never added it all up!
One of three things will happen…..
You might have more coming in than you have going out.
Hmm… I guess this is a good problem to have, right? But it can be a problem, especially if you don’t tell the extra money where it should go. If you don’t have a $1000 emergency fund, then that might be the best place for any extra dollars to go. If you already have your baby emergency fund but have some debt, then paying off debt might be the next best place for that money. If you’re debt-free (yay, you!) then you’ve got to determine where your money is going to go. Otherwise, it’s going to trickle away until it’s gone and you’re left wondering where it all went!
We like to keep a list of things we want to do if there’s extra money. Maybe you awnt to fund your Christmas budget, save for a new vehicle, or give a little extra to an organization that you support. The neat thing about your budget is that it’s YOUR budget. You can tell those dollars and cents to do anything you want.
You might have less coming in than you have going out.
Many people are finding themselves in this situation right now. In fact, I’m guessing that’s why many people put off doing a written budget. Denial can be a tough place to live. But getting it all written down is the first step in creating a plan to make it work.
In the Financial Peace University class we’re taking, Dave Ramsey recommends prioritizing your budget. He states that, after your tithe, your first priority should be your four walls…. the physical needs of your family. Those include food, shelter, clothing, and transportation. If you have those four things, then you can function pretty well and get to work. (Of course, we’re not talking designer jeans and a Cadillac if your budget’s out of balance.)
After the necessities are covered, then you can prioritize the other expenses that you have. Utilities might top the list. After that might be other debts. Even those can be prioritized. If you only have enough to pay 3 of the 5 debts you have this month, just pay those three. I’m not suggesting that you default on anything. I’m just encouraging you to do what you can do. Keep in communication with the creditors and let them know where they fit into your budget.
If you’re in this situation, I highly recommend getting into a Financial Peace University course near you. You can use the class locator HERE. There is a cost involved, but you’ll learn some serious negotiating and prioritizing skills from this class!
You might have exactly the same amount coming in and going out.
Somehow, I doubt that this is the case. But, if it is, then you at least have it all written out on paper and know that you’re breaking even.
The Variable Income
The only other catch we’ve run into is the fact that we have a variable income. Because of that, we base our monthly budget on the amount that we know we can count on. I have a base pay amount. If you’re in sales or have some other type of variable income, maybe you could budget on what you usually make. Some people budget on the worst case scenario.
Once we have our basic budget done, we make a list of the things we want to do with any extra money that comes in. We prioritize this list, noting the dollar amount of each item. When extra money comes in, we go right down the list until the money is gone. This seems to be the best way for us to stop the disappearing act that our money did when we didn’t have a budget.
What about you? If you have a budget, do you use a spreadsheet or just jot it on paper? If you don’t have a budget, is it because you’re afraid of what you might find when you write it all down? What’s holding you back?
This post is linked to:
:: Frugal Friday hosted by Life As MOM
:: Works for Me Wednesday hosted by We Are THAT Family
Need to work on a budget. I’m going to go back and read your posts on this. We finally got out of debt a few months ago, but I need to make sure to not just squander that money away. 😀
Have a great weekend!
Sherry
Congrats on getting out of debt! I’m glad that you’re looking at a budget to manage all that cash now! 🙂
Back when I was single, when I made a variable income, I would budget tithes and donations first, as percentages. Then I would budget fixed expenses, like rent and car insurance, as fixed amounts. Then I would take what was left and budget percentages again for other things, like my fund for buying a new computer, or whatever. I think my food budget was a percentage, but I’m not sure. It’s easy to be super frugal with food when you’re single, and just eat less or buy something cheaper–not so easy when you are a family of 4!
Now I have a husband that provides a steady income. I’m a SAHM, and don’t work very much at all. We budget his income in solid figures, same every month. If he has overtime, he decides how to spend it. I make a little now and again sewing or from sales or ads on my blogs, and I am now budgeting that money. I wasn’t for a while, but I found that my total assets (checking + savings balances and paypal balance combined) was getting smaller over time. This was partly due to my inability to stay within our food budget–I’d use my personal money to make up the difference. Having a son with multiple allergies means I have to buy some more expensive items to feed him, and that explains most of my problems in that department. We just adjusted the budget for next month, so maybe that will help.
But I have also started budgeting my personal income. Since I don’t have any fixed expenses that I must pay out of it, I do percentages for everything. I’m starting a sewing fund out of my sewing earnings, so that I can buy new things to help me sew better–like a ruffle/gathering foot. It feels good to be budgeting again!