According to the Institute for Divorce Financial Analysts “money issues” is named as the reason for divorce 22% of the time. Figuring out how to budget is huge, especially if you have debt. And dealing with finances is not something that many people understand or are taught growing up. I recently started to do start a budget for our family again. We built up some debt after several setbacks and are more than ready to get out of it. So we are going to really watch our spending and make it happen. And you can too! Start by grabbing your FREE budget monthly worksheet from the Resource Library
Financial Issues and Stress
Financial issues are the 4th leading cause of stress, according to HCCUA.com. Only behind the death of a loved one, childhood trauma, and divorce.
When you are having money troubles it plagues just about everything you do. You can be grocery shopping and realize that you shouldn’t be buying soda this week because water is free. Or watching tv and realizing, maybe you should cancel cable.
It is there in everything that you do. And it causes a lot of stress. That stress can cause all kinds of other issues. From health problems to relationship problems. And until you really get out of debt it will never go away.
Take action in your life and come up with some steps to cut back on your monthly spending as much as you can.
- changing internet service to save money
- cancel/downgrade cable
- downgrade cell phone service plan
- cut back on utility usage (electric/water)
- track your spending or go back and average out the last 3 months to see your spending trends
There are numerous ways that you can get a little head start on saving money in a few different places. And just $10-20 from a few places each month will make a huge impact on your stress level.
But working to setup and start a budget will do the most for you. And it will get you out of debt. As long as you do the work and stick to it.
Getting Ready To Start A Budget
First, you want to get a few things put together so you have all the information you need to set your budget up correctly the first time. Getting it setup based on guessing is not going to help anyone.
You’ll want to get all of the following things together.
- monthly recurring bills
- credit card statements and minimum payments
- average spending on items like groceries, miscellaneous items such as cleaning products for your family
- the way you plan to keep your budget (paper, spreadsheet, app)
- your total monthly income
- a copy of the budget worksheet from my Resource Library
**It can also be helpful to have a list of due dates for different payments and a list of your paydays so that you are aware when all planned incomes and expenses are going to be affecting your account balances. Although this is not technically part of your task to start a budget.**
Now that you have all the information together you can get ready to start a budget!
One More Quick Thing
I just want to point out that when I became motivated to start budgeting for the first time, about a year ago, I read a book that made a huge impact on me. It really helped me figure out how to setup my budge. And it helps to keep me motivated to stay on budget by imagining the life that my family can have if we truly follow the process and do what is suggested.
That book is The Total Money Makeover by Dave Ramsey.
It is an excellent read and I truly believe that everyone should read it before they take control of their finances for the first time. If we all did, maybe so many of us wouldn’t be in debt. We would at least be closer to getting out of it.
The main part of it that you want to keep in mind for getting ready to start a budget is how to pay off your debt. He suggests doing so in a very specific way for a very specific reason.
When organizing your debt, lay all of it out in front of you. From a doctors bill, to credit card, to car or student loans. Write them all down on a blank sheet of paper in order from smallest to largest. This is the order in which you want to pay off your debt.
Some people may think that’s silly. But here’s why.
Paying off a large amount of debt takes a lot of time. It may take years. If you are only paying over the minimum payment on 1 of your accounts and it seems to be getting you nowhere, you’ll lose steam. Motivation will be gone and you’ll give up. However, if you have a small debt of $200 and pay it off in 2 months, you will feel like you have accomplished something.
Trust in the system. And do what he says. It really does work.
Examples make everything more fun! Here’s a quick one.
Debt Amount Owed Minimum Payment Scheduled Monthly Payment
Credit Card #1 $300 $45 $150
Credit Card #2 $5000 $155 $155
Car Loan $15000 $280 $280
Student Loan $40000 $115 $115
So looking at the chart I made you’ll see that all the extra money in the budget that wasn’t needed somewhere else went to the $300 credit card bill. That bill will be gone after 2 months. This person should stop using that credit card completely, cut it up and close the account so the ability is gone.
Then take that $150 and add it to the payment for credit card #2. So that payment is going to be doubled now. Rather than paying only the minimum of $155, they’ll be paying $305. And that bill will go away twice as quickly too.
But by paying off the first one so quickly, this person has kept the feeling of accomplishment and success alive the best they can. And when they pay off credit card #2, they will take that entire $305 and add it to the car loan. Making that payment total $585 per month. And that car loan is going to feel like it disappears compared to its actual term.
So this gives you a small taste of what Dave Ramsey calls the debt snowball. I kind of think it’s fun to talk about really, because it’s exciting to see more and more money going toward something like that.
Grab a copy of The Total Money Makeover if you are interested in learning about the rest of his ‘baby steps’. I found it very inspiring.
Start A Budget
So now that you have all the information and tools necessary to start a budget, go for it!
The hardest part is figuring out where your money currently goes. Versus where it should be going. So after the first time it really does get easier!
The best thing to do is name your categories first. Do what works for you. A generic budget worksheet may or may not fit your lifestyle. I know that I needed something custom made for me to really be able to wrap my head around. You can grab the one I made and use monthly in my Resource Library.
To get you started, here are some of my categories:
- mortgage (rent
- utilities (gas, electric, water) – break them down if you need to. We only actually pay electric currently since we don’t have gas and have a well.
- mobile phone
- subscriptions (Netflix)
- child care
- miscellaneous (paper/cleaning products, furniture items, anything that doesn’t fit elsewhere)
- pet care
- exterminator (summer months for mosquitos, fleas, and ticks)
- auto/Home Insurance
- car Loan
- credit cards
- automobile Gas
You can combine as much as you want, or break it up even more. Just remember to do what works best for you here. And you can always adjust it month to month as necessary.
Evaluate Past Spending
This is the scary part. You need to use the information you gathered about your past spending to setup category allowances. You also need to evaluate where you over spent and how to adjust it.
When I did this, I realized how much money we were spending on groceries each month. We also ate out too much. But I was surprised to see that groceries was really the biggest culprit in our money problems.
So I decided that we needed to start doing some other things to really cut that amount in half or more. I decided to start meal planning, and making grocery lists. It had an enormous impact from the very first month.
Whatever your issue area may be, come up with a game plan, and a goal. And do your best to stick to it. But if you set the goal too high, adjust next time.
Assign Category Amounts
Now that you have figured out where your money needs to go and how much is required to go to set monthly expenses, put it all on paper (or in an app)
Get it all written down in front of you so that you can actually see it. Put everything into its place so that as the month goes on and you are tracking your spending, you can watch how much you have left. This is important so that you know when to stop spending in that category for the month.
There are a lot of ways to do this. Some people pull out cash and put it in envelopes labeled with each category. When the envelope is empty that’s it until next month.
Personally, I use an app. Don’t worry, the free version is what I use. You can pay for the upgraded version, but I don’t think it’s worth it for my style. The app I use is Every Dollar. It is that app that Dave Ramsey talks about in The Total Money Makeover. I like how it is incredibly customizable, and very user friendly.
When I go to Walmart and buy things in 5 different categories, I can enter the total of the receipt (I figure amounts for each with tax included myself on paper first) and then select what categories to split it between. And simply enter in the amounts under each listing. All with the title of Walmart for where the money went. I personally, love it.
Don’t Forget Why You’re Doing It
The most important part of the process involved to start a budget is that you stay motivated. In order to keep up the hard work you need to remember what you are working towards.
A debt free lifestyle is absolutely worth a few years of living frugally. Because soon enough, you’ll own your car and your home. And you won’t have to worry about paying for those things. And you can build up savings too. So you can really have financial freedom and just enjoy life.
Starting a budget is really just the beginning. Sticking to it is where the work comes in. But your relationships will thank you when you start to pick away at your debt.
Stick with it! And please share your success stories (big or small!) with me in the comments. Because sometimes I need extra motivation too!
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