The theme this month is Money.
Budgets get a bad name. Most people associate them with being broke or having a spending problem. But budgets are really just coordinating your resources with your expenses. And if you want to design your own lifestyle, you have to get control of your money.
So, let’s do it!
How to Set Up a Budget
- List all your net (take-home) income sources for the year and divide by 12 to get your monthly income.
- List all your fixed expenses (mortgage, car payment, life insurance, etc.). Don’t forget about the things you only pay once or twice a year, like property taxes (divide to get the monthly expense).
- Using past receipts or your bank register, calculate your monthly expenses for variable costs like groceries, dining out, vet bills, car maintenance. Divide the annual amount of each by 12 to get your monthly expense.
- Put all your income and expenses on a budget spreadsheet. This is the budget form I started with and you are free to download it. It will automatically calculate cells for you.
- How do things look? Are you covering your basic expenses, or do you have to rely on credit cards or savings to make it through the month?
- This is where we adjust for overages and put in a plan for our lifestyle goals. First things first – pay off debt. Set up a manageable plan to pay it down every month and take some away from expenses that can be cut, like dining out or new clothes. Next – set up savings/expenses that align with your lifestyle goals. Want to go back to school? Set up a savings plan for it.
- Now that you have a budget, you have to stick to it. Measure it every month – did you go over? under? It will take a few months to adjust your budget to a good baseline, and as you get pay raises or pay off debt you can further adjust it.
Adjusting Your Budget
A budget has taken us from debt to healthy savings, and it is the only reason we are able to pursue our goal of traveling the world next year. Knowing our lifestyle goals, income, and expenses keeps us on track and focused on what really matters.
We’ve adjusted over time to put more or less into savings, and you can, too. Perhaps your high school reunion is coming up and you need airfare and spending money that isn’t normally in your budget. You simply determine how much you need, add it as a temporary line item, and start saving. You could go ahead and buy the airline ticket with your savings and pay it back over time (this also works well for emergency situations). The trick is to have savings in the first place.
There are several online resources to help you with your budgeting and saving plans.
- Mint.com is a good resource for keeping all your accounts in one place and tracking your budget. At once glance you can see where your money is going. Best of all, Mint is free.
- SmartyPig is an online savings account that helps you track small and large goals. You’ll be hearing more about SmartyPig later this month.
- The Simple Dollar is an excellent blog about personal finance from someone who is successfully digging his family out of debt and pursuing his lifestyle goal of being a full-time writer.
Once you start budgeting your money with a lifestyle goal in mind, it actually becomes fun to track because you are working toward something great.
What is your lifestyle goal? Do you have a budget to help you get there?
Betsy Talbot writes about carving the lifestyle you want out of life you already have. When she’s not writing, she’s paring down, saving up, and getting ready for a year of travel with her husband.