So, my sister started reading this blog, and mentioned that she would like to see more about how to budget. She mentioned that Dave Ramsey talks a lot about budgeting, but she doesn't feel like she has enough practical advice on how to budget successfully. Honestly, this was a challenge for us for a long time. For a lot of people, once they start budgeting, it seems restrictive and discouraging. It can feel restrictive, because when you budget, you typically cut things out of the budget (such as dinging out) that were previously care-free. It can feel discouraging if you don't meet your budgeting goals month after month. Through the next series of posts, I will be sharing what has worked for our family, and hopefully you can find something that works for you.
Oh, and before I forget, do not get into the mindset that budgeting is not for you. I have met some people who seem to think that because both the husband and wife works, and they rake in a wad of cash, that budgeting does not apply to them. Really, that is just an excuse. Budgeting is just a way of staying organized and dictating where your money goes. Most people who haven't budgeted before are really surprised how much they actually spend on some categories.
The first step toward successful budgeting is creating your budget. I am a computer-software-nerd-guy, so my first instinct is always to use online tools whenever possible. I don't really own paper, and kind of despise paper in general. With that said here are a couple of great tools for budgeting:
- Mint (by Intuit):
- This tool is great because it connects securely to your bank accounts. This means every transaction you make with a debit card will be electronically pulled from your account and auto-categorized for you. However, the actual budgeting tool itself in Mint is not the best.
- Everydollar (Ramsey Solutions):
- This tool has an excellent user interface for budgeting. However, you have to pay money if you want to import transactions automatically.
Given, the strengths and weaknesses of both tools, my wife and I prefer to use a combination of both tools. You heard that right, "my wife AND I". Both of us, together. If you are married, then you cannot budget successfully by yourself. It has to be both of you sitting down, together, hashing it out. We have found that we strike a great middle ground with no surprises when we work together on budgeting.
So, now to the actual budgeting. Here are the steps that we follow:
- At the start of the month, gather the paystubs from the previous month.
- Create an account with everydollar if you do not already have one
- Enter all sources of income into the "Income" section of everydollar. This should be your gross income.
- Enter in all taxes and other deductions from your paycheck. Go as granular as you can (health insurance, dental, vision, fed+state taxes, legal plan, HSA, etc.).
- Enter all housing expenses in the same granular way (electricity, gas/propane, water, cable, internet, mortgage, etc.)
- Continue doing this, starting with the essentials of life (shelter, food, clothing), until you have filled out every category in your budget. The key to doing this correctly, is that it should say "It's an everydollar budget!" at the top of the screen. This means that you have budgeted every dollar toward something.
- Tip: You may want to leave some extra money in miscellaneous for those unexpected expenses that occur mid-month. But we'll talk more about how to handle those situations a little later on.
- At this point, you should have a basic budget, that both you and your spouse have committed to. Not just a "hey, this is what we will shoot for"... but actually committed.
- Now that you have done this, you should see a visual representation of where your money is going (see above). It will also show you what percentage of your money is going toward each category (giving, savings, housing, etc.). This in and of itself can be eye opening. When we saw this for the first time, I immediately reduced the amount of my paycheck going toward the government in the form of taxes.
- Now that you have an everydollar budget created, you want to re-create it in Mint. That way, you can use it as your day-to-day budget throughout the month.
Don't worry, although the first month doing this can be time consuming, everydollar will automatically copy your budget over to the next month when you do this in the future. My wife and I can budget now for the whole month in about 15 minutes. In the next few posts, we'll talk about how to actually stick to the budget you have created.
