Starting with a Small, Simple Budget

Starting with a Small, Simple Budget

by | Jun 21, 2016 | Quitting your 9-5 | 0 comments

21

JUNE, 2016

Budgeting
Investing
Saving

simple budget

Sample Excel Quick Start Budget

Start With Your Income

If you’re budgeting for the first time, trust me, I know it can be overwhelming. But we have to take it slow and methodically. Start with a small simple budget and grow it from there. To start, when it comes to income, we tend to have only slight control over what amount of money we have coming in. But I propose that it’s less about the amount of money we have coming in and more about how we control that resource. Of course, having extra income can improve our lifestyle or allow us a bit more freedom to spend our money but no matter the amount of revenue we have coming in, it should be spent in a controllable way. Having a budget is not just about knowing what your bills are and making sure your bank account has enough money to purchase whatever it is you want at the time. Having a budget is about controlling the distribution of your income so that your purchases are not determined by ‘if I have enough money,’ but rather, ‘have I created intentional space in my budget for the purchase I’m about to make?’ I understand how silly this can sound but it’s really a simple concept that most of us easily miss. We let the number in our bank determine the amount or frequency of objects we can buy. This leads to an empty bank account nearly every month before we get our next paycheck and it often leads to a paltry savings and investments. Isn’t that frustrating? I remember attempting to save extra cash in my bank for emergencies and always feeling that no matter how much extra money I made, or raises that I got, the money flew out the back door of my bank account faster than it was deposited into the front door. What gives?

The Budget

It took my wife and I enough heartache and overdraft fees to realize that if we didn’t tell our cash where to go, our cash would instead determine where we go. In 2010 Ariana and I went through Financial Peace University, authored by Dave Ramsey and offered by some churches out there. At first we thought that there isn’t that much this class could tell us that would revolutionize the way we handle our money. After all, they’d probably just tell us to stop going to restaurants and stop buying expensive things which I’m sure we could do eventually without their help. We were wrong. What we put into practice then has drastically affected the way we look at life, the way we spend and the way we view money. Why is it so difficult for us to be transparent and intentional about the amount of money we make, spend or save? I think it’s somehow tied to our identity. It’s the popular phrase, ‘keeping up with the Jones’s’ that helps us focus on what we lack instead of the abundance that we’re truly surrounded by. So how do we and did we budget in a way that helped us gain control and make progress toward our savings and retirement goals?

Give a Name to Every Dollar

Q

Example 1

Net Income: $4,000
Giving: $400
Rent/Mortgage: $1200
Utilities: $300
$ Groceries: $620
Various Insurance: $350
$ Entertainment/Dining: $650
$ Gas: $250
$ Clothing: $100
$ Furniture: $100
Cell Phone: $100
Gym Membership: $30
Minimum Credit Card Payment: $100

Surplus/Deficit: -$200

R

Example 2

Net Income: $4,000
Giving: $400
Rent/Mortgage: $1200
Utilities: $300
$ Groceries: $420
Various Insurance: $350
$ Entertainment/Dining: $300
$ Gas: $200
$ Clothing: $50
$ Furniture: $50

Cell Phone: $100
Gym Membership: $30
Savings: $200
Investments: $200
Credit Card Payments: $200

Surplus/Deficit: $0

Living Paycheck to Paycheck

Here comes the challenge. If you’re dealing with finances that are mainly paycheck to paycheck and often frustrating at the end of the month, how much time are you willing to put in to making a change? Some simple homework I suggest is to print out your bank statements or credit card statements. Sit down and write down each of your expenses and give it a total number. How much are you spending on groceries? How much on entertainment and dining? What are your fixed bills like gas, power, rent or mortgage etc? Once you are aware of all the areas you’re spending your money and the amount in each category for every dollar you spend, compare the total spent to your total income. Scrub through each item and determine which is a bit excessive or where can some spending be improved. Next to each variable item that you can pay in cash instead of swiping a card, mark it with a dollar sign ($). Let’s use net income for simplicity. See the first example to the left:

By writing this out and taking note of where the majority of your cash is going, you can get a better understanding of what may be putting you over your budget. For example, spending $650 on monthly entertainment seems a bit excessive. Why are we spending so much there? Is it the daily fast food expense or coffee runs? The nightly food with friends at reasonably expensive restaurants? If we do this each month we run a $200 deficit that likely get’s covered by our credit cards. So what are the dollar signs for? Instead of swiping our card to pay for each of these categories which gives us little to no control over our spending, let’s add up what we’d like to spend, reduce our expenses in these variable categories and add a couple other categories like savings, investments and more to debt repayment. Once we get paid, lets withdraw from the bank the appropriate amount of cash in percentage relationship to our bi-weekly income of the items marked with a $ and let’s commit to only spending that amount for this pay period. Here’s that second example to the left:

You’ll notice I preemptively dropped my spending estimates in Entertainment/Dining, Groceries and Gas to make room for the new categories that I’d like to add. We withdraw $1020 and allocate the appropriate cash to envelopes with category names on each of them. If we go to the grocery store, we take cash. If we go out with friends, we take cash. If the entertainment envelope is out of cash, we don’t go out anymore until we get paid again. Now that can seem restrictive can’t it? But let’s look at the payoff. We still get to go out and eat well but we’ve added three new categories to our budget: Savings, investing and an increase in debt payments. How much better would the end of our year look if we made a commitment to giving each dollar a name instead of letting our bank account balance determine our spending? Close your eyes and imagine savings and investment accounts that grew by nearly $5000 or about 10% of your salary this year and your credit cards were paid off simply because you told your money where you wanted it to go. I think that’s better than counting the bucket of pennies at the end of the year.

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