Dirty “B” Words

This weekend I experienced something quite foreign to me.  Friday, I saw that my vehicle registration renewal was in the mail.  It was $63.00.  Get this:  I wrote a check for it this morning and sent it in.  Immediately.  That thing I experienced?  Oh yeah, I knew exactly where I would pull the money from to cover my registration!  What a stress-free transaction.

Guys, I’m excited.  I’m making headway on my debt and I’m looking at money differently.  Your money doesn’t control you.  YOU control you!  We just have to remember that we also need to control our money so it becomes a blessing and not a curse.

If you’re reading this and think you know how to write a budget, I need you to erase everything you’ve previous learned.  If you’re like me and in debt and don’t have a ton of extra money, then I know this way of budgeting can set you straight.

Dave Ramsey explains it like this:  “Every dollar needs to have a name, on paper, on purpose, before the beginning of the month.”

I’m going to walk you through a “Zero-Based Budget”.  The idea is to have a place for every dollar that you bring in each month.  This might sound extreme to many of you (my boyfriend still thinks I’m nuts), but it works.  This budget is a blueprint for your life.  Whatever financial goals you have, whether it be getting out of debt, saving for your child’s college education, scrounging up money for a down payment on a home, this is the plan to achieve those goals.

Here a video from WBHomesteader (follow him on Youtube) on how to initially set up your budget.  Mine is slightly different from his method, but the premise is still the same.  Name every dollar before it’s spent.

Why is a budget important?  Because a goal is just a dream without a plan.

Last October, I was fed up.   When I logged in to see my balance on my student loan, I noticed that I was paying $60 a month towards interest alone on a over $18,000 remaining balance.  Paying $200 a month, I knew I would never get out from underneath that loan.  I got angry. Not just at the interest payment, but the loan balance, my car loan, my credit card, my tiny savings balance and finally, myself.  I knew I had do something different to get out of debt.  I had to take responsibility for the mistakes I had made in the past to put myself in this financial landslide.  If you’re brave enough to face your mistakes of the past, you are primed to create a brighter financial future for you and your family.

I’m showing you how to do a budget prior to going through each baby step so you can get a handle on your household finances .  Believe me (and about 99% of people who got out of debt using Dave Ramsey’s plan), this will make getting out of debt so much easier. You’ll know beforehand where everything needs to go in order pay a certain amount towards the debt you’ll knock out first. Here is my budget for this month:

January 2015 Budget
January 2015 Budget

You’ll see my budget is slightly different.  I chose to copy my boyfriend’s idea and use an Excel spreadsheet.  If you know your way around Excel, then it makes it easier to play around with your numbers.  You get immediate feedback from inserting a summation formula so everything totals automatically.  If you’re old school, there’s nothing wrong with pen and paper, as long as you make your budget every month. Let’s start with the basics.

  • list your monthly income at the top
  • create columns to mirror the amount of times you get paid per month (I’m biweekly, so I have 2 columns)
  • List each bill you pay each month under which paycheck column you’ll pay it in (rent, cell phone, ect)

Here’s where it get’s a little hairy.  Notice the extra expenses I account for that you might not have listed.

  • clothing
  • car maintenance
  • gifts/xmas
  • prescriptions
  • restaurants
  • NTTA (tolls)
  • running items
  • personal hygiene
  • orthodontia

I want you to think about expenses you have each year, but that you probably never save for.  Clothing is usually the major culprit.  What if you could go shopping and never feel guilty again because you think you spent too much?  If you budget for it, and only use the cash you have in that category, you can shop worry-free.  This is especially useful if you have kids school shopping.

The same is true for car maintenance.  On average, most people spend $500 per year on car maintenance and repairs.  I have a savings account linked to my checking that I can easily draw from to take care of oil changes, tires, repairs, ect.  My vehicle registration was also paid for out of this account.

Keep in mind that we each have different lives, which means budgeting won’t be the same for everyone.  I have a significant amount dedicated to my car loan because my focus for the next 4-5 months is to pay it off.  I’m also saving up to pay for braces, which explains the Orthodontia category.  Being an avid runner, I make sure to budget for race entry fees, clothing and shoes throughout the year. I would recommend that you sit down and really think about what you spend your money on.  Then see if there is anything you can either cut out or just don’t care about.  This is where you start prioritizing your life-on paper, on purpose.  Then, create as many specific categories as you can.  I don’t have a miscellaneous category because I can’t track what that money is spent on.

The more money you can allocate to draw your paycheck down to zero, the better.  Don’t go completely down to zero – I suggest leaving a little cushion in there in case you forget about a bill coming out. Most people that do their budgets this way feel like they’ve gotten a pay raise.  I completely agree – I allocate money into both envelopes and dedicated savings accounts each payday, and I almost always have money left over before I’m paid again.  I feel secure knowing that I’ll have money for most things that will come up throughout the year AND I’m living on less than you make.  No more living paycheck to paycheck for this girl!

Here is a blank budget form I whipped up for my readers:

blankbudgetform

Until my next post, remember: CASH IS KING!

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