On payday I did what I usually do and filled out my budget spreadsheet, making calculations and adjustments and more calculations and more adjustments till it dawned on me that I am borderline obsessed with my budget (remember what I said about being obsessed with your goals?). I check it at least once a week and adjust as needed. I don’t know what life would be like if I didn’t have a budget…no wait, that’s a lie, life would be a mess, that’s what it would be. My budget is the holy grail of money in my life. With a tremendous amount of mental shifting and pain taking effort, I’ve finally instilled in myself the mindset that if there ain’t room in the budget for it, it ain’t happening— full stop. The fact is that budgeting is not something you do, it’s something you subscribe to. It’s a mindset. And if you don’t have a budgeting mindset then it won’t matter how many different budgeting plans you try, it will never help you stay in budget.
It’s tempting to think of a budget as something restricting when in all actuality it’s freeing in a lot of ways. When you budget, you don’t have to worry about over extending yourself and creating future debt for future you. You also inevitably cut out all the things that were nice but not necessary, leaving more room for all the things that are great and by their greatness make them necessary. For example, I used to go get manicures and pedicures all the time, and that was nice. Was it amazing? Not really. Did it fill my heart with joy? Eh. This might not be the same for everyone; someone else might treat getting their nails done as their ultimate treat/self care/self love routine, and that’s great! The key is to find what makes YOU happy and make room for that in the budget by taking out all the things that are just eh.
Let me tell you a secret, not so secret: anyone with a significant amount of wealth, either in liquid assets or fixed has a budget. Sometimes it’s called an accountant or a financial advisor, but all it is is a budget! Another way to think about it is money management. How are you managing your hard earned funds so that you get the most benefit out of every dollar? The bottom line is, if you care about building wealth then you’ll budget your money, that’s who budgets…
My 4 Budgeting Rules
- Adjust all of your expenses to occur during a one week period. This is the foundation of the budgeting plan I’ve laid out in rules 2, 3, and 4. It works is by giving you time to earn and plan for every dollar you make in a given month, and then pay all your expenses at once. This works really well for me because I get paid monthly (I know, at first I though WHAT THE HECK??). When I get paid at the end of the month, which happened to be Wednesday this month, I sit down and fill in my budget, then I go ahead and pay all my bills which are all conveniently due between the 1st and the 7th of the month. Once everything is paid and done with, I don’t have to think about a single expense for the rest of the month. For those who get paid weekly or bi-weekly, the same end result can be accomplished by setting all your expenses to be due at a particular time (say the end of the month) and then setting money aside each week or whenever you get paid to cover those expenses. This method avoids having to use one paycheck to over a big expense like rent or car insurance. Another way to think about it, is that you are creating weekly/bi-weekly sinking funds for your monthly bills and expenses. In 2, 3, and 4 below I’ll show you how it works.
- Plan for fixed expenses. You know every first of the month the rent comes knocking at your door, so why aren’t you prepared? You can reduce your money related stress by simply planing ahead. If you get paid weekly, you can take out 1/4 or 1/5 (depending how long the month is) of the rent money every paycheck. Say your rent is $800/month and you make $600 a week, you can set aside $200 a week to pay your rent, by the time the first rolls around you’ve got all you need and don’t need to scramble to come up with rent money or spend an entire paycheck and then some on rent. Same applies to their fixed expenses; if you know you pay $65 a month for your cell phone bill, you can put aside $15 dollars a paycheck (I promise you won’t even notice) and again by the time you come around to pay your cell phone bill, you’ll have all the money needed. Let’s use my income and expenses as an example.
I take home about $750/week and pay $1,200 in rent, $65 for my cellphone bill, $80 for internet, and $104 for car insurance monthly. In order to accumulate the payments for my fixed expenses throughout the month, I’d have to save 1/4 of all my fix expenses each week. That comes out to $362.25 a week for fixed expenses, but we aren’t done yet.
- Pay yourself first-ish. Some people say you should always pay yourself first, but I’m more like “I before E except after C” kinda girl. In other words, I like the idea of paying myself first but only after I’ve secured my basic needs. Without meeting your basic needs how can you accomplish any money goals when you’re only just surviving? So I like to make sure my rent money is situated, for example, before I get carried away paying myself first. When it comes time to figure out how much I should be paying myself, I decided on a percentage. At the moment, I am paying myself 5% of my paycheck to myself.This may seem small to some, but I rather err on the side of realistic and accomplishable. There have been many a time where I’ve tried to really stretch my goals, only to disappoint myself. I’ve basically learned the hard way that it’s better to start small and work your way up as oppose to starting too high and falling flat on your face. Let’s continue with my budget as an example, if I put side 5% of $750, I get $37.50, with my fix expenses, that brings my remaining balance down to 350.25 per week.
- Plan for Variable Expenses. Plan for variable expenses last because they are often more flexible and can be adjusted as needed. For instance, credit cards are variable expenses— sometimes you pay well over the minimum, sometimes you pay the minimum and sometimes you don’t owe anything at all. Because you won’t know with certainty how much you will owe in variable expenses, it’s good to set aside a percentage of your income to cover the amount that is equal to or greater than your minimum due. For example, I have 5 cards, the minimum combined of all 5 is $130 per month, so depending on what else I have going on that week, I may set aside $32.50 (1/4 of $130) or I may set aside a little more because I know I have nothing going on that week. This brings our remaining balance down to $317.75.
Depending on your family size, $317.75 may seem like not enough or more than enough. As a single person with no children or other dependents other than my dog, $317.75 per week is more than enough to spend on groceries, gas, entertainment, etc. The best part is that I know I’m putting money aside for upcoming expenses and do not need to stress out or over extend myself when it’s time to pay up.
The Bottom Line
I’m not a financial adviser nor do I claim to know anything beyond the basics. With that said, I’ve been budgeting for a good 10 years now and I’ve learned a thing or two about what works for me and what doesn’t. I’ve basically taken the advice of the Dave Ramseys of the world to make my own plan and my own financial path. Hopefully this plan can serve as a guide or a starting point for others looking to get serious about their budgets. If you’re ready and excited to have the best budget game you’ve ever had, you can download my free simple budgeting guide to help you get started.