Budget. Some people despise the thought of setting up a budget so much, that they don't even want to to hear the word budget. I think it's because the word budget sounds restricting and it has a history of being used in a negative light. For example, your parent loses their job so now your family is on a budget or your employer is having budget cuts so now they are having layoffs. I have also heard someone say a budget tells you how to spend YOUR money but who wants to be told what to do with their money?
According to the Merriam-Webster dictionary, a budget is an estimate of income and expenditures for a set period of time. Which is not negative at all, but I think Dave Ramsey said it best, a budget is giving every dollar a name so you can spend without guilt. I look at it as a piece of the puzzle that will help me achieve my goals.
“I look at it as a piece of the puzzle that will help me achieve my goals.”
A budget can help eliminate those surprise situations where you check your bank account after a great weekend and you only have $20 left and there is 10 days until payday. According to Bankrate.com, 16% of the people who responded to their January 2015 survey do not have a budget and a 2013 Gallup poll survey said only one in three Americans prepare a detailed budget. I think most of the people who responded to Bankrate.com's survey are already financially savvy so I'll say between 16% and 66% most of Americans do not have a budget.
I use to be one of those people, I knew what bills to pay but I didn't have a plan for what I was going to do with the money left over after I pay my bills (disposable income). Well I did have a plan...shop but it just wasn't the best one. Looking back, I could have paid more towards my student loan instead of just paying the minimum payment and I would be either finished paying my student loans or close to it. I had the money to pay more but not the right mindset.
Now I give every dollar a name by creating a zero based budget made popular by Dave Ramsey. Once I started budgeting, I realized I was wasting lot of money on stuff I did not need or really use. I was able to free up more money to pay off debt, save and do some of the things I love, like travel and still buy cute shoes.
Creating a zero based budget does not have to be hard and just because I love you. I have created a budget template so you can create your own zero-based budget and if you completed my expense template it shouldn't take long to complete, if you haven't completed the expense my expense template, pull out the items listed below and grab a copy of the budget template and let’s get started. your pay stubs, bank and credit card statements, download your template, and let's get started.
Items needed
Pay stubs (2-3 months)
Bank statements (2-3 months)
Credit card statements (2-3 months)
Bills
Paper and a pen (to list out everything before you transfer it to your budget template)
Financialdemics Budget Template - Grab a copy below!!!!!
How To Create A Zero-Based Budget
1. Compute your monthly income.
Review your your past pay stubs and/or your bank statement to determine how much money you bring home monthly. If you have irregular income, look back at your monthly income for the last 12 months and base your budget on the lowest month.
2. Calculate your monthly expenses.
Before you start to calculate, break your expenses up by fixed, savings/financial goals & lifestyle.
Fixed Expenses - Rent/mortgage, electric, gas (household), water, car payment, groceries, cell phone (if you don’t have a home phone), car insurance, child care expenses, etc.
Financial/Savings goal - Savings (emergency/opportunity fund), Extra debt payment, after-tax retirement savings, after-tax investing, savings for specific goals (wedding, house, travel, college, etc.)
Lifestyle Expenses - Cable, fun money, entertainment, beauty maintenance (hair, nails, brow, spa), gym memberships, hobbies, gifts, lunch, etc.
Your fixed expenses should include all of your basic expenses you need to live day to day. To ensure you don’t for get any basic expenses, compare your expenses to your bank statements and your bills.
Your financial & savings goals will include the amounts you saving or paying after you get you get paid. If you are employed do not include your retirement contributions deducted by your employer but you can include contributions made to your IRA. If you are self employed, I personally would not include retirement plan contributions, I think you should make the contribution before you take your income out of the business.
Be realistic, with your spending. If you get your nails and hair done every two weeks, add that to the list, if you go to happy hour every Thursday, add it, your lunch money, that's an expense too or you can include your lunch money as a part of your fun money. Pull out your bank and credit card statements for comparison to make sure you don’t miss anything. If you use cash and are not sure what you spend your money on you may need to track your spending for a month but you still can still add it to your budget based on the price of the item/service.
3. Subtract your total expenses and savings from your income.
Is the number positive or negative? Remember we are creating a zero based budget so it should equal zero.
Positive difference - Give your money a name based on your goals. If you don't have a savings, build your savings. If you have a lot of debt, dedicate the extra funds to paying off your debt using the debt snowball or the debt avalanche. Make sure you have fun money set aside, if not you may blow your budget.
Negative difference - There are two ways to attack this….I don’t want you to live like a hermit but first look at your fixed expenses is there something can cut or reduce, next take a look at your lifestyle expenses and then look at your financial and savings goals (There is no point in aggressively savings if you have to turn around and pull the money back out before the month is over because you can’t pay your bills).Here are some questions to ask yourself:
What expenses can I reduce or cut in order to make amount equal zero?
Are there any services I am not are not using?
Are there any expenses I can negotiate (credit card interest/cable)?
Are there any expenses I can push out an extra week (hair/lawn care) to change the number of times you pay each month?
The second way (my preferred method) is to make more money. Whether it is a new job or a side hustle. Look into ways to increase your income. A boost in income can help cover your expenses, pay off debt, build an emergency fund, contribute to the start up of a new business, save for the down payment of a home etc.
4. Evaluate your monthly spending, adjust as needed and do it again.
Keep in mind, your first budget may not be perfect and there maybe some expenses you forgot to add or an unexpected expense. Give it a few months to get in a good groove, you still may blow it, it happens, but it will be easier to recover.
Your budget is not there to hinder you from having fun, you can build fun into your budget.
Do you have a budget? If so, how has your budget positively affected your finances, comment below. If not, comment on what's holding you back from setting one up?
