The MOST Important Things to Do IF You’re Ready to Budget

1. COMMIT

Once you’ve decided to budget, regardless of why, you have to buckle down. The first few pay periods are going to be rough, and more than likely, you will mess up every time. That is ok. During the COMMIT phase, you are preparing for the future where you are always cognizant of your spending habits. You are practicing sitting down and being honest about where your money is going and where you want it to go. Just get in the habit and don’t be too harsh on yourself-yet.

2. WRITE IT ALL DOWN

Writing where you spend money is oddly shameful. Most people start budgeting because they don’t have enough month at the end of their money. As I’ve said before, the reason I started budgeting was because I didn’t have as much money for investing and traveling as I wanted. I do both of those things more now, and without debt, but I still have room to improve.

So, write down all the things you spend money on from the last 2 or 3 months. Really look at the category totals and see if that is where you want all your money to be going. Those small purchases add up. By making those seemingly insignificant purchases you are delaying your future wants. Maybe you have 100 cute phone cases, but you can’t afford a new cellphone when your screen is shattered beyond repair. In the long run, which of those is better?

3. FIGURE OUT YOUR ESSENTIAL BILLS

Your essential bills are going to be things that provide shelter, transportation, and food. These are the bare minimum categories that keep you going. Rent, mortgage, utilities, vehicles, and food. Be very honest about how little you really need to stay alive and well.

Once you know what your essential bills are, figure out if you are paying too much for them. You might have a beautiful apartment, but would it be worth downgrading a notch just so you don’t have to finance your groceries? Or can you shop at a cheaper grocery store? Even if you have an excuse for why you can’t, just think about the options that are available. Just in case…

4. FIGURE OUT YOUR FUN MONEY

Fun money is a broad category. This category will include going out, fun activities, shopping, traveling, music and TV subscriptions, buying plants, doing crafts etc. These things add value to your life, but if your life depended on it, you could stop spending money on these categories. This is going to be the easiest place to find ways to trim costs, but also the hardest because these things are…fun. Too bad. Again, the first few months will be the hardest, but once you are in a better place, these are things you can add back in.

5. UGH, DEBT

This is the worst category! If your only debt is student loans or your mortgage, things are probably ok-ish. If you have several debts though…like credit cards or personal loans… you are going to have to make harder budget cuts.

If you do have a lot of consumer debt, try consolidating it by taking out a personal loan or moving everything to a 0% credit card offer. If you get a personal loan, be honest about what it is for. You can combine multiple debts into one payment every month. This option better have a lower interest rate than what you’re already paying. If it doesn’t, skip it. Only move stuff to a credit card IF it is low or no interest, and YOU CAN ABSOLUTELY PAY IT OFF IN THE ALLOTTED TIME!!

6. DUE DATES

List out your due dates for each thing you pay. Depending on your pay schedule-monthly, biweekly, weekly, daily- split your bills into each paycheck.

If you get paid daily, prepare to put yourself on a weekly budget. Micro budgeting is the hardest way to look at the big picture and plan long term.

7. AVERAGE EXCESS SPENDING

Average out your fun money and grocery spend and any miscellaneous spending for each pay period.

8. DO THE MATH

You’re going to do a few easy math problems now:

MONTHLY INCOME – MONTHLY BILLS- MONTHLY DEBT PAYMENTS- ESSENTIALS- FUN MONEY=$_________

Second, you are going to break down each paycheck.

PAYCHECK – BILLS – DEBT- ESSENTIALS- FUN MONEY=$ ___________

Do you have wayyyy more money at the end of one paycheck? Consider splitting a large bill in half and setting aside half from the previous check. This works well with rent and mortgages. If you get paid biweekly, you will have 2 months per year where you get 3 paychecks and you will have a little extra money then. Hello Christmas money!

9. MAKE SOME CUTS

Now that you’ve identified the problem make three decisions. That’s it for now. This is a long, hard process, but it all starts with a shift in your thinking.

Reduce food/drinking costs. Most people go grocery shopping without a plan; you are not going to be that person anymore. Make a menu and only buy what you need. Try to use up what you have in your pantry. If you frequently go out, start by saying no 1 day each week. Even if you spend $10 less than usual, you just saved $10! Good work!
Figure out one debt to focus on. Which one gives you the most anxiety? Make the minimum payments on all your other debts, but the Anxiety Debt is now your top priority. This is the game. Pay a little bit extra on this debt by making the balance an even number. If the balance is $2378.68, pay $3.68 right now to make it an even, whole $2375. In two days decide that you want the balance to always end in zero. Instead of getting coffee, put another $5 towards this debt.
Set your money schedule. Now that you know where your money is going, you will adhere to that schedule. You don’t get to spend into next payperiod. What you have is what you use.

This might be how you operate for a couple months. It can be very daunting to start budgeting, but it will change your life. You have to make the little changes before you can see the big change. Once you’ve got this down, check out my other budgeting posts where we get even deeper into making personal changes.