For years, my wife and I just winged it when it came to money. We paid the mortgage, car payments, utilities, and credit card bills. We spent whatever was left over on ourselves and it seemed we didn’t ever have any extra money. There was hardly ever a time that we weren’t out of money before the end of the month. The worst part about it was that we didn’t even know where all of the money was going. If you want to get ahead financially, you need a budget.
Our spending was way out of control. When the money was gone, the arguments started. I would spend some money on myself and my wife would feel like she should be able to spend the same amount and visa-versa. This often led to hurt feelings and more debt.
While we were going through the program, my wife and I started to write a budget. Let me tell you, this is the very difficult first step to financial independence. Trying to get two people on the same page about where all of the money should be allocated is hard – very hard! But, we were committed to the process and knew it was the only way to climb out of debt.
A few years ago, we started to get serious about money and paying off the debt. We started Financial Peace University, a program taught by Dave Ramsey. I highly recommend the program! One of the cornerstones of the course is the personal budget. Besides actually changing the way you view money, having a budget is easily the most important aspect of leading a healthy financial stable life.
There are some important things to know about how to do a budget. There is a specific and natural order to it. Certain items will take precedent over others. For example, the most important things to me are the mortgage and food – opinions on this will vary. These are the things that allow me and my family to be secure in our lives. The next items on my list are home utilities and gas. The lights need to stay on and I need a way to get to work.
The next item on the list, after all of the actual necessities are taken care of, is debt payments. Any extra money you have needs to go to paying off debt. Read my article, Get Out of Debt, for more information. For the purposes here, I am not including the primary mortgage payment in the debt.
The very last items in the budget should be things like cable tv, internet and entertainment, for what should be obvious reasons.
Here is an example monthly budget. Every penny your earn should be allocated somewhere and you should be able to track it. It doesn’t have to be anything fancy. Just list out your income and subtract the expenses until you get to zero.
Creating a budget and sticking to it every month is difficult and is something that is learned over time. If you do it long enough, and trust the process, it will become a habit. For the first few months, you will be horrible at staying on budget. And inevitably, something will come up that you didn’t account for. This is to be expected, but it’s also something you can learn from for the next week, month or year.
Today, my wife and I know exactly where every penny we spend has gone. We are debt free and no longer under undue financial stress. This is all thanks to a lot of determination and a little planning. Doing a budget has also increased our communication about money, which oddly enough, we don’t have to talk about that much anymore. We know what we can spend and if it can’t be worked into the budget, it can wait.
After some time, doing a monthly budget will seem natural and easy to do. Every time a bill is paid, the budget is opened up and gets updated. Also, the more you do it, the easier it gets and the more disciplined you will become.
I highly recommend that you get control of your finances by building a budget. It can be a scary thing at first. But, you will change how you handle and value money.
Write down unexpected expenses as they come up. Then, the next time it comes up you will remember and can work it into the budget.