There are many different types of financial advice strategies out there. I’m going to be honest with you in the fact that, for some of you, this post may just fall into one of those options. However, before you navigate away and tell yourself that you have things set as you need for your life, take a few minutes out of your day to hear me out.
I will wholeheartedly admit that my budgeting system may not be the best and most ideal fit for everyone. I will also say that after 15 years of marriage, my husband and I have tried many different approaches to managing our finances. We have tried a lot of those different systems out there and have had the most success with the tips I am about to share with you. With that in mind, we do not profess to be rolling in the big bucks. We still have a long way to go with getting to where we ultimately want to be. I am sharing these tips with you in hopes that you can find ways to hone in on what works best for you and your specific situation.
Find your REASON!
The first and most important thing to keep in mind when trying to set up a budgeting system that works well for you is just this. Find your REASON! Why do you feel you need to hone in on your finances? Do you have more debt than you are comfortable with? Do you want to have a little more cash left over at the end of your paychecks? Maybe it’s all about staying on track to get to your goals. Whatever your reason may be, you need to identify that and be open with both yourself and your spouse about that reason. By sharing this with your spouse, or a close family member/friend, you are holding yourself accountable for staying on track with your reason.
For us, we have a few different reasons that play into our personal accountability and to help you try to identify with this a little more, I want to be as transparent with you as I possibly can. Our reasons all have to do with keeping the end in mind.
- We want to have a comfortable and reasonable retirement.
- We would like to be able to enjoy our life while we can now, without sacrificing for that later on.
- Most importantly, if something unexpected were to happen to either myself or Jaron (my husband), we do NOT want to leave our children with debt that they are unable to take care of.
Your personal reason may be something similar or it may be something completely different. That’s ok! What you need to keep in mind is that you will not be successful with a long-term budget plan if you do not identify your reason.
Budget Dates
When it comes to maintaining and managing our budget, we have also agreed to be on the same page with it on a VERY regular basis. In our early married life, we were not so great about this. I would sit down to pay the bills, make sure everything was covered, and as long as I wasn’t bringing up a major issue, Jaron just trusted that everything was great. This did work somewhat ok, but when either of us wanted to go out and make a larger purchase, or there were emergency purchases, he didn’t quite understand why those could not be taken care of, and I would just be frustrated with myself for not managing things “better”. These situations all resulted in those common marital arguments of finances. Yes, we would eventually figure out how to take care of those things (not always in the best way), yet the same type of issues would come up again and again.
One day, I’d had enough and told him that we were going to change things. I was determined to make a turn for the better! What was a turning point for us? We managed our regular budget TOGETHER!! We set up a regular “budget date”, two times each month (that is how often he gets paid), to go over our spending and bills one.thing.at.a.time. Yes, it takes a while, but it is worth EVERY SINGLE SECOND. By the end of each of those “budget dates” we are both on the same page with what has been paid, where we were with each and every bill, and how much we have left over for other things.
We make sure to schedule these “budget dates” during a time when we can solely focus on things together, uninterrupted. Sometimes this happens after the kids go to bed and sometimes it happens on a Sunday afternoon when they are distracted with their own downtime. It doesn’t matter when you schedule your “budget date”, what matters is HOW you schedule it. Make the most of that time together so that you can invest in that time TOGETHER.
Be willing to make a sacrifice
Now, as you identify your reason and work through your budget dates, you are more than likely going to find things that need a little refining. I’m going to get into the details of this here soon, but the thing to keep in mind is that sacrifice is a mindset. You can not and will not make progress with this should you not be willing to make a change. If you have been living a certain way for some time, you are going to have a hard time breaking some of those habits. However, I can promise you that sacrifice will make a world of difference.
Think for example of your daily soda run. Let’s say that you pay $2.50 each time you go to get that cup of soda. If you are doing that 5 times each week, you are going to spend $650 over the course of a year, in soda alone! What else could you do with $650? I sure as heck know it could pay for my airline tickets to go on a vacation that year. What about that set of tires you needed to preplace? Maybe you have had your eye on a new couch. While I’m not saying you can’t go out to get a drink here and there, I’m inviting you to think of how that falls into some of your long-term priorities. This example is easy for me because I’m no longer a soda drinker, but ask me a few years ago and I would have a hard time relating to this.
How often do you eat out? Do you have a hard time passing up those “spend $20 more and get free shipping” deals? How much food do you throw out of your fridge at the end of the month? Find the things that you can identify with and refine those in your budget to fit your more long-term priorities.
Live within your means
This tip is the biggest and most important part of successful budgeting. It is very easy to say that you can live within your means, but in our day and age, it’s also very easy to find things that tempt us to make life “more enjoyable”. We have the ability to get a loan for anything we want just so that we can have it when we want it. This is definitely a nice option to have available, but I personally feel it has been grossly overused, and not for the better. How many of you can say that you have a loan? Yes, so do we! Now, how many of you can say that you have more than one? Ok, so what is your long-term plan of getting rid of those loans? What kind of interest rate do you have on those loans that are ultimately causing you to pay more than what you could have paid, should you just have been a little more patient with yourself?
Now, I do want to clarify that I believe debt is not necessarily a bad thing, if it is handled right. I believe that there are two different types of debt:
Good Debt: Mortgage, vehicles, credit cards (**disclaimer below)
Bad Debt: Rent, credit cards, high rate interest loans
The goal with debt is to have as little good debt as possible, and to get rid of bad debt ASAP. You cannot get anywhere with your finances, should you be constantly tied down to some type of payment. Tackling debts that are not getting you closer to your REASONS are only going to hold you back. As you work though building and refining your personal budget, tackling those debts HAVE to be included, no questions asked.
**You probably noticed that I listed “credit cards” under both good and bad debt. That’s not a type-o. Credit cards can be a good thing for you, but ONLY if you use them responsibly. I’ll be writing more about our thoughts on credit cards in an upcoming post, so stay tuned for that.
A BUDGETING option that WORKS for us!
I mentioned before that we have tried a few different things over the years. Some worked for us and some did not. THIS has worked the best and is the one thing we have decided we will stick to. The concept is super simple, once you put in place the principles I have previously mentioned. So what is this budgeting concept, you ask?
To begin, you need to figure out your monthly income. DO NOT take this lightly. You absolutely need to calculate this over a period of time. Look back 3-6 months, maybe even more if you have variable income, to evaluate your INCOME. How much money do you bring in each month, after taxes? What does your paycheck look like once it is deposited into your bank account? Make sure you do not figure in overtime or bonuses. You will want to calculate your income based on the times you may have a little bit of a smaller income, to avoid overspending.
Once you know how much your monthly income is, evaluate your EXPENSES. Again, do this over 3-6 different months so that you can identify the average and highest amounts you spend. With expenses, you want to budget for a higher amount so that you have some wiggle room.
We categorize our expenses into 5 different lists: home, vehicles, food, utilities, misc. Our mortgage, vehicle payments, monthly grocery spending (eating out and that soda run need to be included here!), and finally anything such as power, gas, water, internet, phones, television, etc. would fall under utilities. The misc. category would be things like kids’ extracurricular activities, hair appointments, family bowling night, etc. Yes, some of those are a luxury (like eating out, internet, phones, and TV), but that is a great example to know where you can eliminate items that could be sacrificed now, until other means are taken care of. If you have regular medical bills or medication, this should also be figured into your expenses. Any kind of insurance payments that are paid after you receive your paycheck should also be included here.
Now that you have an idea of your income and expenses, we can talk about what we suggest and what really works for us.
The Budget Breakdown Rule!
Start by sorting your monthly income into a percentage breakdown and you’ll see how much easier this can help you with your financial needs. The percentage breakdown works as follows and, for us, is prioritized in this order as well.
10% – Donations or contributions. We donate monthly to the church we attend. This is a very important priority to us so we put this at the very top of our list, when making our monthly payments. Before we dive into paying any other bills for the month, we make this donation and address the rest of our spending, as needed. If you do not donate to a specific organization, I would strongly suggest you find something you can contribute to, outside of your own personal needs. If you are very set on not using this amount as a contribution, invest it elsewhere as a larger savings, or retirement investment. Think of it as something you will not touch or it does not exist for you.
70% – Personal and regular spending. This is where your expenditures come into play. Anything included within this 70% would fall into the 4 main categories of our home, vehicles, food, and utilities. If your figured expenditures are over 70% of your income, what can you do to make some adjustments? Are your vehicle payments too high? Could you drive an older/cheaper vehicle? How often do you eat out? What can be eliminated? Trust me, the sacrifice now will be worth it later on.
20% (flex) – Savings and debt payoff. This percentage rule may need to be divided down a little further, depending on your individual situation. Remember that good debt/bad debt thing I talked about? Part of this 20% is going to help address those debts, but YOU get to decide how you want to take care of them. Some people will tell you to pay off all of your debts before you tackle building up a savings. I’m here to say that I don’t relate to that. What happens if your water heater goes out, or you need new tires for your car? You shouldn’t put those types of expenses on a credit card and not have the money to pay them off – soon! If you continue to add to your debt with no way to take care of it, you’ll never get anywhere. If you do have a mountain of bad debt that needs to be taken care of, set aside 5% for your savings and use the remaining 15% for your debt payoff. Should you want to tackle it at a faster rate, save 2% and use 18% for your debts. This is completely in your control, keeping in mind your end goal and REASON. The great thing about this, you can adjust it as your debt ratio changes! Just remember, once the bad debts are taken care of, start chipping away at the good debts. How wonderful would it be to be completely debt free and use all of that extra to SAVE?!!
I will talk more about savings and vacation planning in a post to follow. Stay tuned…..
So, let’s take those percentage breakdowns and put them into play with actual numbers. For example’s sake, let’s say you bring home a $2,000 paycheck two times each month (after taxes and any other deductions). That $2,000 is what is deposited into your bank account twice a month. To figure this as a monthly budget, you would make $4,000 per month.
To first cover your 10%, take out $400. This is the amount you use for donations or contributions.
70% of your $4,000 is $2,800. This is what you can use to cover your expenditures.
20% remaining is then $800. This is a flex amount and you can decide how you want to manage it all. If you have a lot of debt, tackle it by breaking this down to a 15%/5% ratio. If saving is a little higher on your priority list, keep it an even 10%/10% ratio. While saving is a big deal, building a large savings account while still having a pile of debit is essentially pointless. Once you can eliminate the bad debts, keep that contribution amount (10%, for example) to pay extra on your good debts (on top of the usual good debt payments). The faster you can pay off any of those amounts you owe to someone else, the faster you will have more money available to you to invest in extra savings.
Moving Forward
All-in-all, that’s it! Budgeting is something that you need to take seriously, should you want to be successful. While I totally understand that this is a lot of information, I would encourage you to start with some small baby steps and take things one bite at a time.
- Start out with a good heart-to-heart discussion to find your REASON.
- Once you understand your reason, commit to working on things together and trying out a budget date. Your first date could be as simple as figuring out your current income and expenses.
- Remember that you have to be willing to make sacrifices to get to where you want to be and you cannot be aware of what sacrifices need to be made if you aren’t being held accountable for those on a regular basis.
- Figure out whether or not you are living within your means and……
- Decide NOW that you need a budgeting option that works for you.
- Give our budgeting breakdown concept a try and I can promise you that you will see results that you will be happy with.
I’d love to hear from you and learn of ways you find success with your budgeting. Feel free to leave a comment on this post with your thoughts and ideas!
Want to learn more? Don’t miss my other post in this series:
Tackling Debt – credit card use WHILE managing your debts!