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3 Steps To A BOLD Budget
After I graduated college and got a real job this magical thing happened. I had money! It wasn’t a lot but as many of you probably know when you go from being a broke college kid to having a decent, regular paycheck coming in it is quite the relief. Finally, all of that hard work that I had put in for practically my entire life was starting to pay off!
I now had a balance in my checking account with three zeroes!
I lived at home with my parents for a while right after college to save some money (would highly recommend this if your parents will allow) and I didn’t have to start paying back my student loans for 6 months (I don’t recommend this). It was awesome!
Or at least I thought it was.
At the time I felt like I was on top of the world. No bills to speak of, no debt I had to pay back right away. Let the good times roll!
And roll they did!
I like to refer to this time in my life as financial purgatory. I wasn’t broke by any means, but I also was not taking the necessary steps to set a solid financial foundation for my future. One of those very critical steps that I missed was setting a budget.
BUDGET. It can be a scary word to a lot of people. I see it as the exact opposite. I see it as an empowering word. I decide where my money goes and when it goes there because I have a budget that I make and I am in control of.
During my years of financial purgatory I didn’t have anything that even remotely resembled a budget. My idea of budgeting was logging into my online banking and checking my account balance to make sure that I had what I thought was enough money to make it until my next paycheck (I really had no idea whether or not it was enough).
Fast-forward several years later and now I track every penny that we spend. Literally, every single penny. It may sound like a lot of work but once you get the right systems in place it is not hard. I track everything once a week and it only takes about 30 minutes at most including balancing my checkbook.
Related: An afternoon in Bankruptcy Court
The first step is easy but critical. Write down every single expense that you have. That is every single dollar that you spend. I use an excel spreadsheet. There are many different budgeting tools out there but for me excel is the easiest. I can do so many different things with excel and personalize my budget exactly the way that I want it. Below is the exact budget template that I use.
On the left is all of the money that I spend in a month. Many of my bills like water, gas, electricity etc. are paid on a certain date every month. I put those types of bills at the top with the date beside them as those items typically do not change from month-to-month. You will see a couple of items below the dated items like gas and food. These are expenses that are generally not all paid in one monthly payment but rather gradually accumulate throughout the month. I add to these as the month progresses.
There will not be near as much action on the right side of your budget in most cases. Most people get paid weekly or bi-weekly so this part of the budget is very predictable and easy to track unless you have an irregular income. If you are in sales or a similar field and your income fluctuates both in amounts and in timing then it takes a little more analysis to properly track your budget.
Before you begin step two I want you to go back to step one for a moment. Are you sure that you included everything? EVERYTHING.
Ok, now that you have every single expense listed on your budget it’s time to do some analysis. Basically, you fall into one of two categories at this point and I will address both. Either you have more income than expenses or you have more expenses than income.
More Income Than Expenses
Good for you. But this doesn’t mean that you can just ride off into the sunset and your finances will take care of themselves. No Sir! or Mam!
Now it is time to prioritize.
I made this flow chart to help you out.
|Step 1:Do you have at least a $1,000 emergency fund?|
|Yes? Go to step 2||No? Read this article|
|Step 2: Are you completely out of debt other than your mortgage?|
|Yes? Go to step 3||No? Read this article|
|Step 3: Do you have a fully funded emergency fund?|
|Yes? Go to step 4||No? Read this article|
Step 4: If you have made it all the way to step 4 then you are doing better than average. You are completely out of debt and have a fully funded emergency fund. At this point you should be saving for retirement and kids college (if you have any) and also working towards paying off your mortgage.
More Expenses Than Income
If you fall into this category the first thing you need to do is figure out a way to get your income up, your expenses down, or both. Both is best.
Decrease Your Expenses
Look through every single line item on the expense side of your budget. Ask yourself these two questions.
- Is this necessary?
- If it is necessary is there a way to reduce the cost of this budget item?
There are thousands of articles out there about finding ways to reduce your expenses and live more frugally. I have created a board on Pinterest with all sorts of helpful tips to help you decrease your expenses. When my wife and I decided to get on a budget and reduce our expenses the first thing we got rid of was cable. This alone saved us close to $100 per month. That was an extra $100 going towards paying off our debt and ultimately giving us more freedom.
Related: Why You Need New Friends
Increase Your Income
The side hustle is in style.
“What’s your side hustle?”
“You don’t have a side hustle?”
“What’s wrong with you man? Everyone has got a side hustle.”
“What are you going to do….. just work for somebody else for the rest of your life?”
I’m totally joking, but seriously it’s cool to have a side hustle. I have a couple of them and I think you should have a couple as well.
There are so many ways to increase your income. I have another board on Pinterest dedicated to this very topic. I am always adding new stuff to it. If you have no idea what kind of side hustle you should take on then take a look at my board. It is full of ideas.
If you currently have less income than expenses then you are going to have to keep on increasing your income and decreasing your expenses until you are at least treading water. But who wants to just tread water?
This sums up life in a lot of ways. The biggest bunch of BS that I’ve ever heard is the saying “you can have it all”. I am of the abundance mindset and believe you can have “a lot” but not everything.
If you want to get ahead financially it is going to take some sort of sacrifice. That sacrifice will come in the form of time or money. There is a finite amount of time and a finite amount of money in this world.
There is a direct correlation between what you are willing to sacrifice both in time and money and how quickly you can turn around your budget, get out of debt and start building your financial future. The more you are willing to sacrifice the faster your financial picture will change.
Are you on a budget?
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