Perhaps you’re on your own for the first time. Maybe you have tried to create a budget but failed. Or you have just never thought much about budgeting before. No matter what your life-situation is right now, creating a household budget may seem intimidating. However, a simple budget is actually quite straightforward!
If the whole idea of creating a budget seems overwhelming to you, take it one step at a time. Don’t try to complete all the steps in a single sitting. Instead, set aside an hour for each activity and follow this step-by-step guide to generate a basic budget.
Get your information together
Pull together all your paperwork, including paycheck stubs, checkbook, bank statements, credit card statements, bills, and any receipts you have. If you haven’t taken these items out of their envelopes, now is a great time to do so! Get everything you have together in one place. Don’t worry about sorting it now or making any sense of it. Just get those little pieces of paper altogether in one place.
What’s coming in?
On a single sheet of paper, list all your income. This includes income from work, tips, house-sitting, babysitting, selling things on eBay, a part-time job, stock dividends, interest, etc. for an average month. List the amounts in gross (before taxes or any other deductions). If you have sporadic income because you don’t receive a regular paycheck, take your best conservative guess at what you earn in a normal month.
Make sure you figure on the low end if you have irregular income. Overestimating your income won’t help your budget at all. It will only hurt you in the future!
What’s going out?
This list is usually much longer than the previous one, unfortunately! Using your paycheck stubs, bills, bank statements, and credit card statements, list your expenditures for a typical month in two columns: Fixed Expenses and Discretionary Expenses. Your fixed expenses normally include payroll deductions, rent or mortgage, property taxes, insurance, car payment, utility bills, credit card payments, and savings. Your discretionary expenses would normally include things like groceries, gasoline, eating out, clothing, hair care, memberships, and entertainment. Now you see where the money is going. Financial tools do exist that can alleviate some of the burden. There are a number of free and paid budgeting software programs that can easily help you manage your budget. One of my favorite ways to manage my budget is with this budgeting spreadsheet I created years ago. You can download it for free by clicking on that link. The directions are included when you sign up for my newsletter.
What’s the Difference?
Compare your income to your expenses. Are you spending more money than you make each month? Are your credit card payments a large portion of your fixed expenses? Do you have “mystery” expenditures in your discretionary expenses side of the list? If so, make it a habit to start writing down ALL your spending. Chances are, you’ll find you’re frittering away $5 or $10 on lunch or at the drugstore on items you don’t even remember purchasing. If you’re out of balance (you’re spending more than you’re making), you have two choices: spend less or make more. Keep re-thinking your spending until you have a workable budget – one in which the “money in” side is AT LEAST equal to the “money out” side and you are paying down your debt. Take a look at my previous article, “Two Words That Can Cause the Most Damage to your Budget: It’s Only” so you can see how the little expenses really do add up.
If you're spending more than you're making, you have two choices: spend less or make more. Click To Tweet
Stick to the Plan!
This step is often the hardest. It’s easy to write out a budget on paper, but it’s much tougher to say no when the office gang is heading out for margaritas after work on Friday and you’ve already spent your fun money for the week. Remind yourself that budgets are like diets: If you splurge in one place, you need to make up for it somewhere else, or you’ll have to suffer the consequences.
Once you know where your budget is leaking, you can turn off the faucet! When you are serious about developing a budget that sets you on the path to financial peace of mind, there are many good money management and budget sources available to use. Search the library or the internet for easy to follow, simple budgeting tools and put them to work for you. My article, “How To Build a Monthly Budget the Old-Fashioned Way” can also give you some guidance.
As you are working through your budget, you may notice that you are spending more than you are bringing in (this is not uncommon!) and need to cut back in some areas. While this may bring up feelings of dread and lack, I want to assure you of two things:
- Cutting back doesn’t have to be forever
- Cutting back is empowering
Why? When we are no longer tied to our debt and letting our money control us, we are able to take charge of our finances and decide what is best for us rather than feeling out of control and reactive to our financial situation. With that in mind, here are some areas to consider that may help you save money:
- Make Money Blogging – Many people ask me how to start a blog to earn extra income. As you can probably imagine, that isn’t a question I can answer in just a few sentences! One of the ways to earn extra income through a blog is from affiliate marketing. This can be a tricky topic if you don’t know what you are doing. A fellow personal finance blogger has put together a course called Making Sense of Affiliate Marketing that will teach you how to earn extra income from affiliate marketing. Michelle teaches you the exact steps she has taken to earn $100,000/mo (yes per month) from her blog. I have went through this course myself and loved it, I highly recommend it!
- Cut the Cable – Years ago I decided to get rid of cable and was able to stream content through my Roku device. I still love my Roku as an alternative to cable and highly recommend it to anyone who is interested in saving money. I wrote a detailed guide on how to get rid of cable and use a Roku device. In addition to my Roku device (where I stream Netflix & Amazon Prime) I also purchased a $6 antenna from Amazon to watch local channels live. It’s a great set up and has saved me over $1,200 a year!
- Consolidate when it makes sense – I’m not always a big fan of consolidating loans but sometimes it can take the pressure off you when you have a lot of payments. (Of course – the trick to that is to stop the behavior that caused you to get all the payments in the first place!) If you are looking to consolidate your debt, I recommend Lending Club. Lending Club is a peer-to-peer lender which means you are able to bypass a traditional bank and get connected with investors who fund your loan and earn monthly returns. Normal credit checks still apply and Lending Club offers unsecured personal loans of up to $35,000 to borrowers with good-to-excellent credit at very competitive rates. I have used Lending Club twice for loans and have been happy with the products and services both times. I highly recommend Lending Club if you are looking for an alternative to a traditional bank.
- Inexpensive Fun – Looking for a night out but don’t want to spend a lot of money? Yelp Deals, Living Social & Groupon all offer inexpensive ways to go out and have fun without spending a lot of money.
- Bring in More – In some instances, you may not be able to cut back anymore so in addition to cutting back, earning extra income can help you to bridge the gap in your income. Sites like Flexjobs and Moonlighting let you earn extra or full time income from home. I particularly like Flexjobs (more detail in my Flexjobs review) and have used their services in the past when I was looking for a IT Consulting job where I could work from home. The service is exactly as described as they are able to aggregate legitimate work from home professional positions in one place. You can even set up alerts to be notified when positions you are interested in become available.
- Get Paid to Shop – Using Ebates can help you earn cash back. By shopping through Ebates at your favorite stores, you earn cash back on your purchases. Ebates will pay you via check or Paypal. Check it out, it’s a great way to earn extra money for things you are already buying (just make sure you really need what you are buying!).
If you’d like more info, I have more tips listed on my Get out of Debt page.
Do you have questions about budgeting? If you’d like to dig a little deeper into budgeting, I created a Budget Bootcamp to get you on the right track so you can get out of your financial hellhole. This bootcamp is a 16 week program that can help you to:
- Pay all your bills on time
- Save any where from $450-$1,100 a month
- Become debt free (at last!)
- Watch your savings and investments grow
- Have extra money for the vacations you want or the dream house you desire
- Freedom and peace of mind to know you will be free of the burden of debt
If you have any questions, please don’t hesitate to leave a comment or reach out to me so I can help.