The Budget

The dreaded word. Budget. Dreaded but necessary. If you don’t know what you earn, what you spend, and how that all fits together, you will continue downward into the pit of despair.

I know what you are thinking – “But I know how to budget!” – if you are reading this, then no, you don’t. You know how to budget like I did – watching money come in and go out, paying bills on time – but never getting ahead. I thought I was doing everything right. Until I realized I was $75,000 in debt. Sitting at my kitchen table trying to figure out how to pay all the bills with a $3,000 deficit made me realize I was doing it really wrong.

At that moment, I made two small changes to how I budgeted. These changes helped me find extra money, pay for things based on priority, and even helped me discover what foods I had in my kitchen pantry. It’s funny when you start to make conscious choices; things begin to come together.

What’s the first change? The change wasn’t in the type of budget but in the order.

There are so many ways to do a budget. Everyone seems to have a template or an app to download to simplify budgeting! I had Mint.com. I have been using Mint for years now – I saw how much came in and went out, but it wasn’t clicking in my brain that the numbers weren’t jiving.

A pen and an empty notebook helped me rip off the bandaid. I went old school and highly suggest this is the best place to start.

Income
At the top of the page, write INCOME. Let’s start with something positive! Income! Money! YAY! Write a line item for each company’s paycheck and the amount you know you will be paid each week/biweekly/monthly – whenever you receive the check. Then add any commission/bonuses/ OT you are guaranteed as a separate line item. This section is not about hopes and dreams – just reality. If it’s not guaranteed to hit your wallet and it’s a maybe or probably – don’t add it. We want to know the exact number we have to work with. Add a line for any savings you have. Then, total the income and savings together. You now know how much money you will have to work with.

Bills
Below this, make a category for BILLS. These are the monthly things you need to pay to live – mortgage/rent, 2nd mortgage, electricity, water, sewer, internet – only if you need it for your work-from-home job, mobile phone. This section is not about fun bills like cable or Netflix—it is just the stuff you need to survive. When writing your list, add the date each item is due. Knowing the due dates will help determine which paycheck you will use to pay them. Now, total the amounts for all of the bills. Subtract this number from your income to see what you have left.

Food/gas
Your next category is FOOD/GAS. Eating is essential – so is getting to work. Determine how often you need to get gas weekly to go to work and multiply that by the current gas price. Look in your fridge/freezer/shelves – what do you need to buy this month? Do you have food you can turn into a meal? Determine a reasonably low food budget and add this to gas. This number is the minimum you need to eat and get to work. Subtract from your subtotal to see how much money you have left.

Add a buffer
At this point, you have paid everything that enables you to survive. Now, add SAVINGS – this can be for an emergency fund, a fund to pay for future bills like insurance, or to stash aside for anything you forgot to add to your budget.

Debt Minimums
Here, you list all of your credit card and loan minimums – just the minimum. Add an angry face or angry words and symbols to this section. You are knee-deep in the neighborhood of bad decisions, and we need to get angry at ourselves for allowing this. Put each on a line item with the minimum due date and add the due date to determine which check it will be paid from. Also, add the interest rate and total due. You may want to sit down when looking up the interest rates – they can be much higher than you thought; they usually bury them deep in your bank statement. Total up all the minimums and subtract from the running subtotal. Any money left over? YAY, good for you! If not, welcome to my side of the world.

Last is the fun stuff
Go through your statements and find any recurring charges and subscriptions – Netflix, apple tv, cable – add in your restaurant budget here, any fun activities you have planned, and any extras for the kids – dance, karate lessons, etc. If you did not have money left over from the debt minimum section – you now have the list of EVERYTHING you will cancel. Yup. There is no money for this. Sorry Spotify, see ya later soccer practice; goodbye Wendy’s drive-through – just for now. The goal is to bring this back into the budget later if you still want to.

If you had money left over from paying debt but are now running a negative, you can figure out which extras are unnecessary. Do the kids love soccer? Then keep soccer but lose Netflix. Use this opportunity to determine if you want to keep any of these extras or get serious about paying off debt and drop them.

If you still have money left over after all of this, Congratulations! You survived the emergency budget! But look hard at all the extras you found and cancel anything you can. You will give yourself more to get rid of your debt faster. You can put it toward your mortgage if you don’t have credit cards, loans, or a car payment. If you don’t have any of those and have a lot of savings? Then you can head to Disney World and give Mickey a hug for me. The rest of us in the cheap seats will keep on plugging away.

Congratulations! You have just completed the emergency budget! Now you can see what your priorities are.

Next, use the due dates listed to determine which bills will be paid from which paycheck. If you are paid weekly, all bills due before the 2nd paycheck will be paid with the 1st paycheck. Your second week’s paycheck pays all bills due before the 3rd paycheck, and so on. This is the second step to seeing if you have enough money for food, gas, or bills from each check. You may be surprised to find that you have more bills due one week than money coming in. This happened to me, and I realized that I ended up using credit cards during these moments instead of saving money from other paychecks to cover these bills. If you have too many payments due the same week, you can call your creditors or utility companies to see if they can change your billing cycle. Many will work with you on this. Once you have all bills/debts listed by paycheck, you can see how your money flows during your month.

These two steps were a game changer to my budget. I was able to clearly see if there was anything else I could cut and which weeks had more money going out than coming in. This was key to really changing some of the dangerous spending habits getting me more into debt and empowering me to take control of how my money is working for me.

Hopefully, you will have enough money to pay the bill and debt. If you only have enough for bills and food, you will want to consider ways to lower your bills or bring in more money. If you have enough to pay all the minimums – awesome! Take a breath! Then think about lowering your bills or bringing in more money to clear those debts faster.

And that’s it – your budget is done – for now. Take a day or two and sit with it. Think about anything else you can change or eliminate and other ways to bring in more money. Let me know in the comments how you did in this budget – did you have enough for all of your payments? Did you cancel anything? Did you find any extra money? Then, when you are ready – join me for the next part of the journey – paying off the debt.