Does the idea of living on a budget scare you? Do you get images of eating beans out of a can, or wearing a lot of jumpers to stay warm?
Living on a budget doesn’t mean coming from lack. It’s a way of setting up a framework so you can live from abundance with confidence.
First you need to understand your fixed expenses (mortgage or rent, auto insurance, etc.), and then your income. What’s left is where you get creative.
Some people “pay” themselves first and build up a savings account this way. The way that works is to take a set amount, no matter how large or small, and put it into a savings account. Whatever is left goes towards your variable expenses like groceries.
The Basics of Budgeting
It can get overwhelming thinking about where your money goes.
Just take a deep breath. You can use a pen and pad of paper to jot down the numbers. Or you can use a spreadsheet.
Google Docs has a spreadsheet that’s free to use. I use it for keeping track of pantry items so I don’t double buy what I forgot I had. And you can access it just about anywhere.
There are a few websites that can help you set up your budget as well. I think it can be very useful, and I’ll go into more details in tracking expenses.
I just want you to start as soon as possible and not worry about choosing the “right” or “wrong” method.
Where are you now with your money?
This may be uncomfortable. But as with all areas which you want to improve, you have to be honest about where you are before you can make changes.
If you want to run a 5k, you need to figure out how far you can run today. Then you can create a training plan to build up your strength and endurance.
Spend some time identifying your fixed expenses, and the variable ones. You can get some information from your credit card statements to see about what you spend on groceries and petrol in a month.
Also, spend some time identifying your assets. There are liquid assets like any checking or savings accounts that you can withdraw money from quickly.
Where do you want to go financially?
If your goal is to pay off your credit card debt or an auto loan, and build up your savings to $50,000, then you know where you want to go.
Sometimes we haven’t really thought about it and just want to be “better” financially.
As the Cheshire cat said, if you don’t know where you’re going, than any path will do.
And these goals will change as you achieve them, and have other life events both positive and negative.
One friend had three cars totaled within 10 years. All had just been paid off a few months prior. She laughs about it, thankfully, and wonders what it would be like to own a car for longer than 5 or 6 years.
Being realistic helps live on a budget
You don’t want to create a budget that you can’t live with. You’ll just get yourself upset and feel like a failure when you don’t. And no one needs that kind of negativity in their lives.
If you really want to eat lunch out with your coworkers, plan on that accordingly and find other areas to cut back. Or look into cutting it back to 2-3 times a week.
You may be able to plan on regular raises if that’s the kind of company you work for. However, it’s best not to expect a raise or a bonus.
Then when you receive it, you can choose to put the extra into savings or paying down any debt.
Think of living on a budget the whole year
Your income probably will stay the same, but your expenses can vary widely.
For example, your gas and electric bills change with the season. You may wish to have different budgets for then.
One school of thought has you set aside the same amount each month so that there’s float saved up when the amount is less to cover when the bill is more than the budget.
This is also useful for items that you only pay a few times a year like auto insurance, but you want to save a little each month.
If you can set up a savings account connected to your checking account, you can transfer a certain amount each month to cover these occasional expenses. It’s like you’re “paying” it. Then you’ll have the total amount when you need it.
Just don’t think of this account as your emergency savings. You will want a separate account for that.
Simple Ways to Track Your Expenses
Online programs like Mint can connect to your accounts to pull in historical data. This can be a great help when evaluating your expenses.
You can also review for additional expenses you may have forgotten, like your annual life insurance premium. Or your car registration fees.
Don’t forget to budget a bit for special occasions like holidays and birthdays. If you don’t have a lot of money, you can suggest limiting the amount, or offer a coupon for an experience like a fun hike.
Don’t forget saving for things
It’s not technically an expense, but you want to deduct funds from a budget to go towards goals like a holiday or a major celebration.
There are a number of other sites such as Stash which can help you save up for these goals.
Harv Eker has his JARS system which is a different way of budgeting. He recommends 50% of your money should go for the basic necessities. If you’re spending more than that, you should figure out how to spend less and earn more.
The other 50% is broken up across Financial Freedom, Long-term savings, Education, Giving and Play.
It’s a fun system that can ignite your wealthy mindset to think beyond your current situation. If your budget is tight, just keep this in mind for the future.
And don’t hesitate to put a penny aside each week for financial freedom, savings, education, charity, and fun. It’s like keeping some bills in your wallet.
Knowing that you have money that you’re choosing not to spend can bring more abundance .
Regularly Review Your Spending
You will want to set aside time each week to review how you’re doing and identify areas where you may be overspending, so you can plan how to underspend to balance things out.
Budgets need to be adjusted regularly. If you paid off your auto loan, then you will want to figure out what you want to do with that extra cash each month.
Also, you will eventually realize some of your expenses are unnecessary. Perhaps you’d prefer to make your own coffee or lunch at home and bring it into the office.
Maybe you have a magazine subscription that you never read. It’s perfectly fine to cancel it.
Do you subscribe to a gym that you never go to? Having a budget may be the incentive you need to get to the gym or finally cancel it.
Every little step will help you succeed. You’re planting seeds for future dreams.
3 Best Habits for Successful Budgeting
Do set aside time to create a budget. It helps to use an online tool for easier tracking.
Review your spending weekly so you can stay on top of any slips or unexpected expenses.
Celebrate when you’ve achieved a financial goal. And then update your budget with your next one.