Have you said that word to each other yet? That uncomfortable B word that everyone hates? That word that makes you cringe at the very thought of it. No not that B word silly!
I’m talking about the word budget (insert cringing here). It’s easy to see why everyone hates this word. Having a budget limits your freedom. It restricts you from getting what you want when you want it. Having a budget is no fun. It brings no joy. But what if I told you the exact opposite is true?
For three years I supported my wife and two kids on a budget of $27,000/year. Yes you heard that right… The only way I was able to do that was by creating a budget. A budget that I continue to adjust and live by today - not just surviving, but thriving and feeling the freedom that it offers.
Having a budget is similar to living on a diet, working out, or taking care of your vehicle. You may not necessarily enjoy doing any of these things - but it’s needed! Once you take the time for it you are so glad you did. It doesn’t restrict you. It keeps you focused. A budget isn’t a bad thing - it’s a good thing!
Have you ever got to the end of the month and realized you spent all your money on things that don’t matter? Living on a budget ensures we are spending our money on the things that matter MOST in our lives.
Here are 7 simple steps to live on a budget:
Know your income
Record your average expenses
Make sure your income is more than your expenses
Make paying off debt & savings a priority
Decide how you will track your spending
Learn to say NO
BONUS CONTENT: Orchard.Church holds several Financial Peace University groups! FPU is Dave Ramsey's well-known method to take control of your money and experience Financial Peace. Use the form below to get more info on FPU:
Start with a blank spreadsheet or piece of paper. If the amount you make changes every month then lean on the conservative side.
Look back at the past three months and record the average for all your bills and spending.
Here are some sample categories that you want to cover as you look back at your expenses. If you have bills that change month to month then write down the average amount from the past three months. They don’t need to be exact.
- Monthly mortgage, rent
- Car insurance & registration
- Monthly Subscriptions/Memberships
- Life insurance
$ PRO TIP: Include a category for miscellaneous expenses. Chances are you will have an unexpected expense or you will forget something the first month. Your miscellaneous category can help cover it!
Here comes the mind blowing part! As you look at the average three months of expenses vs income you can see patterns and trends. Ask yourself these questions?
- Is there anything I can cut back on? (when I first did this I realized my wife and I had been spending $2,000/month on restaurants! Time to change that.)
- Is there anything I want to direct more money towards?
- Is there a category I need to create? (Retirement, car fund, fun money)
$ PRO TIP: Make the changes you need to make. You are in control of your money - your money doesn’t control you.
As you look at your new budget you want to make sure that you are in the positive. You never want to be in the negative - that is, your expenses are more than your average income. If that’s the case then you need to go back to step 3 and make some changes.
If you have a positive budget then you are on the right track.
You want to eliminate your debt as soon as possible so that it frees up that money to go to other categories in your budget. If your budget is in the positive try making regular payments towards your smallest payoff balance.
Dave Ramsey calls this the debt snowball. You can check out his advice here.
You also want to put a regular amount of money per month into savings as an emergency fund. Don’t touch it - this is for emergencies only. Be realistic in deciding this amount.
Once you have your budget plan in place it’s now time to live it! Figure out what works best for you.
What system are you going to use to keep track of your spending?
Some people choose to use one of the services I mentioned earlier: Mint, Goodbudget, Every Dollar etc. Others choose to use a spreadsheet. Some take out cash at the beginning of each month and put each fund into a separate envelope. Don’t get discouraged if after the first month you fall short of your goals. The important thing is that you are trying, evaluating, and making adjustments.
You need to decide what is going to work best for you.
$ PRO TIP: Automate areas that are most important to you (savings, tithe, etc).
What happens when you want to go out to eat, but you have already spent all of your budget money for it? What do you do when you find that incredible shoe sale - buy one shoe and get the other one at full price? (My attempt at a joke).
It’s time to exercise your no muscle. Say the word with me - NO. That’s what your budget is there for. It keeps you on track in order to direct your money where it NEEDS to go.
Say no to good things so that you can say yes to the best things!
Living on a budget is not a one time event. It’s a change in lifestyle. Like most things - it’s difficult at first. But once you have learned to not cringe at the B word you will soon discover it’s a tool to help you succeed.
⇒ Get a clear picture of your spending habits & make changes
⇒ Pay off debt & begin to save
⇒ Decide what system you will use & how to track spending
⇒ Automate what is important
⇒ Learn to say no to good things. Say yes to the best things.