A lot of people, including myself a few years ago, hear the word budget and immediately think that a budget means they are going to be restricted in their spending.
So, is a budget restricting?
Short answer is no and it is your income and debt that is restricting.
Now for the long answer:
A lot of people are not paying attention to anything they are spending until they are out of money and still have days left in the month, or as Dave Ramsey would say, we get to the end of the money and still have month left.
This is when most people start to "budget." But that isn't really budgeting, that is more like freaking out and going to the extremes.
A budget is a tool like anything else. You will do a better job making an item if you start off with the right tools instead of buying the right tools halfway through the project and going back to try and fix issues. Most of the time it is too late to fix it, especially if you've already spent all of your money.
A budget is also not the restricting aspect of the budget. A budget is simply telling you where the MONEY YOU EARN needs to go and where you want the extra to go.
There are two things that are restricting where that money goes, how much money you make at your job and how much has to go towards bills and debts.
Good news, you can fix both of these pretty easy. Make more money (new job, get a raise, second/third job, spouse goes to work, etc.) and stop using debt products (credit cards, car loans, student loans, furniture loans, phone loans, etc.).
Think about how much of your income goes towards that debt. Think about what you could do with that income if you didn't have to pay on that car, on that phone, on that furniture, etc. Now your budget isn't as restricting.......
Ok, so now you might be listening....but when and how should I budget?
You should budget at the end of the previous month for the upcoming month! Meaning October gets a budget at the end of September.
Here is what you should be doing in a nutshell.
Sit down WITH YOUR SPOUSE and write down how much you make a month.
One of you (the nerd like me) can prepare all of this stuff. I do in my house. But sit down with your spouse and talk to them about it before finalizing it. Both of you need to be involved. My wife and I sit down and talk about our budget every month. It now takes like 10 minutes.
Then make a list of all of your monthly bills (mortgage, food, electricity, water, gas, credit cards, cars, student loans, furniture, phone bill, cable, netflix, etc.) and how much each MINIMUM payment is for all of the bills.
Start with things you definitely need (food, electricity, water, mortgage, gas) and subtract each minimum payment from your income total. Keep doing this for all of your bills until you are either done or have run out of money. If you are done, whatever money you have left over is what you can spend on what you want IF you are debt free. This is where a budget can actually be freeing and less restrictive because you know exactly how much money you have to spend on extras. If you have the money and are debt free, then buy the stuff you can afford or save this extra to buy that stuff!
If you aren't debt free, I would strongly encourage you to start knocking out your debt smallest to largest. Interest rate doesn't really matter compared to psychologically we need to feel like we are winning. So, knocking out the smallest debts gives us this win and keeps us going.
Here is some info on how to budget and some forms:
Ok so now that you have your budget done, you're good until next month, right? WRONG!
A budget doesn't work unless you keep track of it. I would suggest using the every dollar app for your budget and for your tracking. It makes things easier. There is a free version and paid version. I would suggest the free version unless you want your transactions to automatically show up in the app. You still need to place them in the right category but that is the only difference.
Use one email for both you and your spouse. Download the app on your phones. Now both of you can track the budget and expenses right away.
This is also making both you and your spouse more involved. If one of you is more inclined to check the app/bank accounts but the other person spent the money. DO NOT TRACK IT! Make them do it. Send them a text message saying they need to or talk to them that night in person.
So, to recap:
Budgeting is restrictive. It is your income and bills/debts
Budget at the end of the previous month for the upcoming month.
Do this with your spouse
Keep track of your expenses and how you are doing
If you need more help with this, schedule a meeting with us. How to budget is one of the many financial items we discuss.
Until next time,