First off, Lauren, thank you so much for having me and for being such an inspiration when it comes to organization and creating a beautiful home. I love your tips and congrats on your blog launch!
Now, let’s get to the reason why I’m here -- to talk about budgets! Budgeting is something I struggled with as a young adult -- mostly because I didn’t have a clue what I was doing. However, once I started to get more serious with my finances, I found several tips that have helped me create a budget that I can actually stick to! In this post, I’ll discuss a few reasons why you need a budget, how to create one and how to stay on track!
Why everyone needs a budget
Before getting on a proper budget, my husband and I couldn’t figure out where our money went every month. At first, we thought we needed to make more money. However, as we started to dive into our financial situation, we soon realized that the issue wasn’t an income one but rather a lack of organization. We weren’t telling our money what to do and when. Instead, we allowed money to take the driver’s seat. As a result, we soon found ourselves carrying credit card balances (about $13,000) and feeling overwhelmed about money.
However, we were both a bit apprehensive about budgeting because the word itself seemed so restrictive. My husband was also quite worried that it meant he wouldn’t be able to eat steak! On the contrary, a budget gives you:
- control over your finances and your life.
- permission to spend wisely (including entertainment and steak if you like, yay)!
- peace of mind as a result of getting on track and staying on track.
How to create a budget
Review your spending habits. Pull out your bank statements for the past 90 days and review every single line item. You might be surprised to see how a few coffee runs every week add up to a few hundred dollars over 3 months.
Separate wants from needs. Needs are your top priority and include covering groceries, rent or mortgage, health and life insurance, child care and transportation. At this point, try to identify areas where you can scale back in each of these categories. For example, buying in bulk or meal planning to save money on groceries. Now that you’ve covered your essentials, it’s time to allocate leftover funds and put them to good use! For example, if you have student loans or credit card debts, then you’ll want to assign a good portion of your income after basic expenses to debt. This could likely require you to reduce your entertainment budget for a few months or longer but it will be totally worth it in the end. Don’t forget, peace of mind is pretty much priceless.
Plan for emergencies. It took us a few weeks to build up our emergency fund in which we have between $1,000 and $2,000 at any given time. We also have a buffer of $150 in each paycheck just in case of any miscellaneous items of anything we might have forgotten. If it doesn’t get spent at the end of two weeks, we transfer that money into savings.
Keep it simple. I’d suggest keeping your categories simple and easy to follow. If you have a complicated budget it’s going to be more difficult to replicate each month. Also, determine whether you want to create a monthly budget or a bi-weekly one. We do a bi-weekly budget because that’s when my husband gets paid. Now that we are in control of our finances, we automatically know that the first paycheck of the month pays the mortgage and insurance whereas the second paycheck covers all utilities.
How to stick to a budget
Creating a budget is one thing; actually sticking to it is another. Here are some tips for staying on track:
- Start immediately. If you’re not already using a budget, then don’t delay. This week, challenge yourself to start with step 1 above, which is to review your spending habits.
- Set goals. Remind yourself why you’re using a budget each month. What is your purpose? In our case, we were 1) curious to know where our money went and 2) we wanted to pay off debt quickly. Once we had the answer to number 1, we realized that by creating a budget I was able to trim our monthly expenses considerably and find thousands of extra dollars to through at debt. Related article.
- Technology can help. There are tons of apps out there you can download such as Mint or Every Dollar at low or no cost! Pen and paper work fine too or you could consider Google Sheets. I love Google Sheets because I can use it on my desktop and also on my phone.
- Review often. Though the basic structure of my budget remains the same, I review it on a monthly basis to see if there are any tweaks that need to be made. For example, I recently realized that we could save a bit more on groceries. So we reduced that line item by $20 and increased the “Transfer to Savings” line item by $20. It may sound small but $40 per month adds up to almost $500 for the entire year!