Today it's time to think about the B-word. Budget!! Just the word seems strict, doesn't it? Having a written budget is so necessary though to plan where your money is going to go. Dave says to get your budget "on paper, before the month begins." A zero-based budget is where income minus expenses equal zero. YOU are telling your money where it is going to go. Being this detailed every month helps you WIN with money. Some things will probably be the same from month to month. (Mortgage payment.) And some months may be different. (Birthday presents to buy, quarterly payments due--like the water bill. Some month you have to get your car inspected.) So yes, a budget every month is necessary - on paper, before the month begins. And as I mentioned before, for me the accountability factor with DH is good too! :)
Go here to see Dave Ramsey's Free Guide to Budgeting.
Here are some points from the PDF:
The point of a zero-based budget is to make income minus the outgo equal zero. If you cover all your expenses during the month and have $500 left over, you aren’t done with the budget yet. You must tell that 500 bucks where to go. If you don’t, you lose the chance to make it work for you in the areas of getting out of debt, saving for an emergency, investing, paying off the house, or growing wealth. Tell every dollar where to go.
Doing so makes a huge difference. According to surveys we’ve conducted in Financial Peace University classes, people who do a zero-based budget (versus those who don’t) pay off 19% more debt and save 18% more money! Just from having a plan! The sooner you make a zero-based budget part of your money-handling strategy, the sooner you’ll start to see your debt go down and your savings go up.
Five Money GotchasSome personal thoughts on the Money Gotchas:
And as you probably figured, if you are spending more than you make each month, you have to start cutting stuff. Use coupons, sell items that you don’t need or have payments on, and stop going out to eat. Here are some common areas that eat up your money:
- Eating out. Start eating leftovers. Staying away from restaurants can literally save you a couple hundred dollars a month.
- Car payments. You can buy a quality car for $2,000, and it will get you around town just fine. And you won’t miss that $500 payment.
- Groceries. Clipping coupons, waiting for sales, and buying generic brands are huge difference makers in your spending plan.
- Utilities. Shut the lights off when you leave the room. Entertain yourself with a book instead of the TV. Those are just a couple of ways to save, but they are big.
- Clothing. We don’t need new clothes as often as we think we do, and buying from garage sales and consignment stores can save you enough to make your jaw drop.
We rarely eat out, so when we do it's a real treat and I think we enjoy it more. Yes, I love to cook, but I also really love saving money. Since we purchase our meat in bulk directly from the farmer, we get yummy steak cuts for $3.75/pound. I've certainly never been able to find a steak in a restaurant that cheap. :-D I rarely cut coupons, unless it's for clothing. I buy most of our food at farmers markets, and if there is a deal, I'll snatch it up. In addition to ordering meat in bulk, I'll pre-order a box of apples to save $5-10, and buy "seconds" on berries in the summer - sometimes the berries are small, but they are very ripe and delicious! And with C as my helpful food-consumer, they never last long anyway!
We got rid of our cable at least 2 years ago, maybe 3? We had the bottom-of-the-barrel option (just under $20/month), but we almost never used it. $240 saved! We watch movies more than TV anyway, so I can't say I miss it all that much.
Here is a sample of our budget - I didn't include all the categories we use, but enough that may be similar to your own and I included a few that may be helpful as a suggestion (like areas for debt).
At the top of the spreadsheet, I list income. I enter them as a positive number. All expenses are entered as a negative number. I have two columns - one for the budgeted amount, and the second for the actual amount. I round up on things like our mortgage, when the payment is usually a few dollars less. For our major bills - mortgage, insurances, retirement account contributions and so on, I have everything paid by the 5th of the month. (Except some of our utilities that follow their own schedule.) Some of you may be paid twice a month and should adjust bill paying accordingly. I love having everything paid automatically; I get emails to tell me the amount that will be due ahead of time. For example - say I get our cell phone bill for May - it will come in April and when I receive notice, I'll just jot a note down in the "Notes" section to remind me of the amount on our May budget form. At the very end of this sample budget you'll notice the dividing line. This is for our expense account. There are some bills that are due annually for us - we've saved some money by paying some of our insurances this way. So, just to be simple - say we have an annual payment of $300. Each month I'll put aside $25 dollars into the expense account so that when that bill is due, I already have the money put aside. I do this for our water bill (due quarterly) and to save money towards vacation and Christmas gifts. We do a secret santa with siblings on both sides of our families, plus parents, each other, C, nieces and nephews and godchildren, so Christmas would be impossible without this planning ahead. Depending on your needs and bills, adjust your budget form accordingly. There are tons of free budget forms out there. Here are a few samples on Dave's site.
Finally, I mentioned before that I use Quicken software to track all our expenses and account balances. I like having the above written form too so I can see our budget not just on a screen, but I use Quicken on a day-to-day basis. Here is a short video if you are interested in learning more about the software.
One of the main reasons I like Quicken is that it's easy to use and I can see all my accounts at the same time - savings, checking, and so on. We do have a number of different accounts - I have a separate business account and we have a separate account for charitable giving as recommended by our financial advisor. We can see our mortgage and home equity line and we also have separate accounts for our WAM. "WAM" stands for "walking around money"- my Grandma always called it that when she would give my sisters and me birthday money. The check she gave us was for our college fund. The cash was our WAM. It stuck. :) Each month we have a little bit go to these accounts for our "wish list wants". Guess which one of us buys more books and which one buys more clothes. Haha. :)
I tried to take a few screen shots so you'd have an idea without going showing too much detail!
Here is a quick look at how you can track items - you can sort by date or payee and you can categorize or even split the category. Sometimes I might buy household goods at Target or groceries, so after I make the purchase, I'll split the receipt into the categories so I can track each budget item correctly.
Quicken also has a budget form option where you can at a glance see where you are in a given category. Green if you're under budget, red if you are over!! :) At the end of each row, you can list your goal amount too.
Here you can see the date, place of purchase, the category, the amount spent and the notes section at the end. For places like Amazon (this was from my Amazon Mom subscription) I like detailing what was purchased, otherwise I may not be sure it's in the right category!
This is particularly helpful at tax time because I can create custom reports of my piano studio and related expenses (those of you who are self-employed would find this helpful!) and also for our adoption expenses when I was filing those taxes and applying for the tax credit.
Do you use software for tracking your finances? Has it helped you stick to your budget? If you have experience with other software, feel free to share in the comments section! Please let me know if you have questions!
Next week I'll conclude this series with Part 4- What I've Learned. Thanks for following along and for all your great comments and questions! :)