The word budget (or budgeting) once terrified me like it does many people. You think once you start to a budget that you won’t have a life anymore. You will be restricted and not able to enjoy your money.
This is simply not true. Having a budget is just being intentional with your money. Deciding what your main goals are and what you are going to spend your money on before you spend it.
Follow the below 5 simple steps to start budgeting and living a financially free life today
Step 1: Track Your Spending For 30 Days
For 30 days or a whole month before you start living by a budget, it’s a good idea to track your inflow and outflow of all money.
This means any income you have coming in write it down including paychecks, child support (if this applies to you), rental income, dividends from stocks, and cash gifts you may receive for various holidays.
You should also write down every last penny that you spend. If you spend $1.50 in the vending machine at work (this is a bad habit of mine I need to break) write it down. If you put gas in your car or pay the power bill, write it down. If you go to the grocery store write it down.
This allows you to see what is realistic normal spending for you and your family which is very important to stick to a budget that doesn’t have you feeling locked down and miserable. These numbers will become very important to you in step 2.
Step 2: Create a Budget And Stick To It
This is where the budgeting begins. At the very beginning of the month or a few days before the month begins, start by writing down all income or money that you will have coming in for the month. You should have an estimate of this from tracking the month before.
Next, you are just going to spend this money on paper and on purpose until you have spent all the money on paper and there is no money left over for the month. This is called a zero-based budget. Don’t worry you are just spending on paper or writing down where your money is going to go. You haven’t actually spent anything at this point.
For example: If I get paid $1500 every 2 weeks I will have $3,000 to spend for the month on paper. I will start by spending money on the necessities. I will write down Rent $900, so now I have $2,100 left to spend. Then I am going to take $200 for groceries. So I now have $1,900 left to spend on paper. Maybe I decide that I am going to spend $100 on a new outfit I have been eyeing. This is okay as long as I write it down. We are now left with $1,800.
Be Realistic With Your Budget
Make sure you are being realistic with your numbers when you budget. Look at your tracking for the previous month. If you have several children and you spent $1000 on food and groceries last month don’t budget $200 for food. That isn’t going to work and you will feel like giving up on budgeting when you get to the grocery store and can only spend the $200 you wrote down.
You see, a budget isn’t restricting at all as long as you plan and decide ahead of time what you are spending your money on.
Stick To Your Plan For The Entire Month
The point is to stick to your budget. Don’t spend a penny on anything that isn’t already written down on paper and decided on ahead of time. And this doesn’t mean this can’t change throughout the month as long as you make intentional decisions to change your allocated spending around.
For example, you went shopping to spend that $100 you had planned on a new outfit …… but somehow you got to the register and your total was $120. You have a few choices to make here. You can either decide to put something back to bring your total to your $100 planned spending or under. Or, you can change your spending plan. If you decide to spend the $120 on the outfit you now have to take $20 from something else that was planned and move it to your outfit category. Just make sure you don’t take this $20 from a necessity category such as rent or electric bill. You can, however, decide to take this from your food budget if you are willing to eat very cheap for a few days to make up for the extra spending on the outfit.
Just work on budgeting. Once you get in a rhythm of budgeting and living by your budget you can look for ways to reduce spending in areas or categories to be able to increase spending in other categories.
Step 3: Find Places To Cut Spending (to be able to pay off debt, save, or spend)
Now that you have set a budget and gotten in the habit of following it (or consulting it to see how much money you can spend where) the fun challenge part begins.
Make a list (it can be in your head, it doesn’t have to be on paper) of your financial goals in the short term and long term. This can be paying off debt, saving for a vacation, investing, saving for a new computer, or whatever your heart desires. You only have one life to live after all.
In order to start putting money towards these goals, we have to find that money first. The easiest way to find extra money to put toward your goals is to start finding ways to cut your expense or cut the money you are spending on living expense so you immediately start having more to throw towards these goals. Make this a challenge to yourself. Set a goal to say cut $50 this month and up it to $75 the next month.
The biggest place most people are able to cut their spending is on food. You can choose to stop eating out or cut back on the amount you eat out. Make your coffee at home. Shop at bulk wholesale places like Costco, Sams Club, or BJ’s if you have a large family. Start incorporating veggie or side night once a week as meat is expensive to have at every single meal.
Step 4: Find Ways To Make Extra Money
I once had to work two jobs when I first started out until I advanced enough in my career to make enough money to pay all the bills from one job. During this time I kept reminding myself that this is temporary. It’s not forever. It’s just my path right now to get to where I want to be.
Not everyone needs to take the step of finding ways to make extra side money. If you have a large enough income you can make progress on your goals along with paying bills and enjoying life all at the same time.
Some of us are impatient and just want it to happen faster.
If you want to reach your goals faster consider finding ways to make extra money. There is always delivering pizzas, dog walking, or driving for Uber. You can find many ways to make extra money from home and online in today’s internet operated world.
My two personal favorite ways of making extra money are:
Step 5: Reach Your Goals / Build Wealth / Live Your Life
So you finally made it to your financially free life. The only thing to do is to keep doing what you have been doing. Making a plan, dreaming big, and sticking to it.
If you have been focused and reaching your goals of paying off debt, investing, and saving it’s now time to enjoy your life some. Go take that well-deserved vacation or buy that expensive thing you have had your eye on.
Budgeting can be very overwhelming when you don’t have an action plan. Just start with small steps and take it one day at a time. If you get off track just start again. Everything gets easier with practice – including budgeting.
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