How to Set Up a Budget and Stick to It!
Saving money at the grocery store is an awesome way to free up extra cash to spend in other areas or to just make ends meet. As we have seen, cutting your costs on groceries is definitely doable. If we work hard enough at it, we can really save a bundle. However, freeing up lots of extra cash and having the money just disappear elsewhere is not the best way to manage it. And, that brings me to my next biggest passion. Budgets. I am now a firm believer that we all need a budget. If we make $20,000 a year or if we make $500,000 a year. It does not matter. We all need to start a budget and stick to it.
For many, many years my husband and I worked and spent, worked and spent. As our incomes increased, so did our spending. Now the problem with that is that I can not even tell you what we bought. But, I can tell you that it was truly nothing that we needed and it was definitely stuff we could do without. Had we been on a budget, we would have been in a much better situation when my husband lost his job a couple of years ago, a much better situation now that we have 3 kids in college and a much better situation while we actively plan for his retirement. That is not to mention our children’s weddings that might be in our near future. (Oh please kids, give me about 5 years!)
So, here are some ways to help you manage your money and plan a budget for your family.
1. Go through your income and expenses.
Look at every single bit of income that comes in and every single bit that goes out. Write it all down. Everything. Every gift, every fast food purchase, everything. Once you have it all written down, start with the items that are due every month and can not be changed (at least not right away). Then make a list of the bills that you can adjust. So you should wind up with 2 outgoing expense categories: Fixed Bills and Variable Bills.
- Fixed Bills: mortgage/rent, car payments, phone bills, etc.
- Variable Bills: groceries, gas, dining out, entertainment, clothes etc.
2. Write your budget
Get to work setting up your budget. If your mortgage/rent is $2000 and you are budgeting every 2 weeks, then $1000 per paycheck gets put aside for that. Go down the list and account for everything. If you don’t have enough then you will need to make adjustments. That is a must. Your outgoing cash MUST NOT exceed your incoming cash. If it does, then go to your variable bills and start cutting. If you have extra money leftover, then that should be used to either pay down debt, add to your emergency fund, savings account and/or retirement account.
3. Emergency Fund
If you do not have an emergency fund, you need to add that to your budget line. Get yourself $1000 saved up as quickly as possible. If it means selling off some stuff on ebay or at a garage sale then do it. If it means, eating out of your stockpile for a month or 2, then do it. It’s very important to at least have a small emergency fund so when something goes wrong, you don’t have to pull out a charge card to pay for it.
4. Cash Envelopes:
We follow the Dave Ramsey system where we use a cash envelope system. Every 2 weeks (because that is how my husband is paid) we pull out cash from the bank that we have budgeted for a select few items. We place the budgeted money in the envelopes and use it over the 2 week period. If we run out, we have to wait until the next paycheck. Here are the cash envelope budget items we use:
- Dry Cleaning
- Blow Money for my husband
- Blow Money for myself
Blow money is just that, money that we each can put in our wallet and spend on whatever we want. At $25 each, every 2 weeks, we are not getting very far with it but it’s nice to have some extra cash in our wallet.
5. Virtual Cash Envelopes:
My biggest problem, when we first started on our budget, was not with the money that we pulled out for the cash envelopes but with the money that was budgeted and left in our bank account. I didn’t want it to just sit in one account, all together in one big small lump. I wanted it to be assigned an envelope. But it was in the bank which became a challenge to organize it. So, I decided, since we use Quicken to track our banking, that I would set up separate accounts in Quicken and “transfer” the money out of the main Quicken checking account and into each of the budgeted separate accounts. How I did this was by setting up other “bank accounts” within the Quicken software. Each new “bank account” was named the budget item such as Mortgage, Phone Bill, etc. My money still stays in 1 account at my bank, I just show it, in Quicken, as moving from the main account to it’s budget account. So, when I go to pay my mortage, buy a present or have the car repaired, the money has already been accounted for. I simply deduct it from the money that accumulated in it’s budget account. I do this in Quicken, but you could do this in Excel. I’ve listed some resources below.
Some bank accounts now offer this right online as well. Or even if it’s just old fashion pen & paper. Whatever works for you and your family. Here are some of the virtual envelopes that we have:
- Car Payment
- Car Repair
- House Repair
- and more (unfortunately)
Here are some great resources for budgeting:
6. Sticking with it.
Once your budgets are set, the key is to stick with it. It’s easy to pull from one of your budgeted accounts one month to pay for another budget that has run dry. The typical thing to do is to say I’ll pay it back next paycheck. Well, trust me when I tell you, 9 times out of 10 that won’t happen. The money never gets back to where it should be and before you know it, a little hole has been dug that you are having trouble climbing out of. What happens next? Those credit cards come out to pay, not for fun stuff, but for the stuff you had on your budget that you can no longer keep up with. So, STICK WITH THE BUDGET.
I am not going to lie. When we first started, the first 3 months were torture. They really were. I thought it was a hopeless cause but I knew if we kept plugging along that we would be in a better place. And, it did get easier. It really did. And now, I am so thankful that we are on a budget. Being on such a strict budget is actually such a freeing feeling. I know that sounds weird but we (including the kids) know our limits now and easily stay within them. And, the funny thing is, our budget has not changed since we started it. But, when we first started, I thought I was being squeezed and would never be able to continue with this tight budget. But, now, I have no desire to change it.
Do you keep a strict budget? If so, how do you do manage it?