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How to Create a Budget that You Will Stick To
Everyone knows that they should create a budget, but how do you decide what to prioritize or even where to start when you create your own? There are many opinions about what one should and should not do. I believe everyone’s budget should be based on WHY they want to start one in the first place. Find out how to create a budget that works for you so you will be more inclined to stick to it and reach your financial goals. I am not a financial advisor and do not have a financial background, but this method is how I have worked to pay off debt while still squeezing in things, like travel, that are important to me. Before making any type of huge financial decisions, it is always best to speak to a licensed professional.
What is your WHY?
The most important part to creating and implementing a budget, is to figure out your WHY. Why do you want to create a budget or better yet; why is creating a budget important to you now? Do you have debt that you want to pay down? Is there something special you want to save up for? Without keeping track of your finances, does your money seem to disappear? Once you figure out why you want to start to budget, then you can figure out the best budget for you and most importantly be more likely to follow it. You will find that your budget will change as your why changes and this is perfectly ok! As circ*mstances and your priorities change, take the time to make the adjustments needed to your budget and you will be more likely to stick with it in the long run.
Keep Track
Anyone that knows me is aware of my obsession with lists. I find making lists helps break things down in a more manageable fashion and reminds me of what I am supposed to do. When I budget, I start off by making three lists to keep track of on a whiteboard; bills, savings and debt. Debt is broken down into who and how much is owed. Personally, if I cannot see something, it is hard for me to remember my plan and it is easy for me to go off track. I update the amounts for our savings and debts monthly which helps keep me motivated. Seeing the amount of debt go down and savings up every month reminds me that I am on the right track and helps to prevent unnecessary shopping sprees that would throw me off track. Even better is the elation I feel when I can erase a debt completely from the board.
Monthly Bills
When creating a monthly budget, start with your bills. Put together a list of monthly bills labeled with what they are and the estimated amounts of how much they are. Start with the bills that are the same each month like cable, the mortgage, car, cell phones, etc. Next, take a look at the bills that can fluctuate like your utilities and estimate the maximum amount of how much each of these could be. I group our gas and electric bills together and estimate a total for both since gas is more in winter (heat) but electricity costs more in the summer (A/C). Since the total of the two typically stays about the same, it is easier for me to use this method to allocate the proper amount for these two bills. For your debts, start by writing down the minimum payments for each one.
*Savings Tips*
- If you want to lower the cost of your utility bills there are a few things you can do. For the water bill, cut down the amount or the length of time of your showers. In the spring and summer, cutting down on things like watering your grass will also make a huge difference.
- Change the thermostat a few degrees and instead put on a sweatshirt or open the windows. Just a few degrees will make a nice difference in the amount owed.
- Switch your light bulbs to LED and unplug items that are not in use. These changes will not be as drastic as adjusting your thermostat, but every little bit helps.
Now you have a list of all your monthly bills and an estimated amount for each. I take the additional step and separate them into what paycheck they will get paid from. Ours are separated into the first paycheck of the month and the second because we get paid every other week. And do not forget to plan for the bills that are not monthly like vet bills or car/life insurance if you choose to pay those in full. That way you have time to start setting aside money each month so you can pay them out of pocket.
Once you have your bills separated and the total for each paycheck ready, subtract the amounts from your take home pay. This is the amount of money that you will have to play with and decide how much of it will go to savings, paying off debt, and what gets spent on food, pet and house supplies and anything extra you might want.
Prioritize
Now is the time to decide what your priorities are. Is it more important to pay off your debt, increase your savings, or is there a trip, event, or big purchase that you want? How much money do you need to spend on day to day living? Once you figure out what is most important to you, you can start looking at where the money needs to go.
The most important thing is to figure out how much you need for your day to day living. This means what you would need for food, gas for your car, pet supplies, toiletries, and a small amount for extra activities that may come up each month. This category may be easier to split into smaller sections like groceries and pet care if you need to. Look at the average amount that you spent on these things over the past few months and this will be your starting point as to how much you will need to set aside in your budget for your monthly living expenses. If your goal is to save money or pay off your debt, this is potentially a good place to make some cuts, especially if you have a habit of spending money on more than the bare necessities.
*Savings Tips*
- Try to eat out less by cooking meals at home, bringing meals to work, and limit restaurant outings with friends. In our house, we agreed to only go out once a week for lunch at work and once a week for dinner.
- Increase house hangs with your friends instead of going out to bars. This saves money but still lets you hang out with your friends. When you do go to a bar, have a budget for the outing. My husband and I agreed to a 2-drink purchase maximum and no bar food. This prevents us from having any surprise $100 bar tabs.
- Consolidate your trips to save on gas or choose to walk or bike to your destinations. These are all small steps, but they do add up!
Make Room for What Matters
It is important that you still make sure you leave room for fun and enjoyment. Leave room for what matters most to you. Our friends go out ALOT, so we made sure to include a meal our two out a week in our budget so it was easier to stick to the game plan. It also helped hosting game nights and such at home, so we still felt like a part of the group.
Travel is also important to me because it has a huge effect on my mental health. I put together numerous trip itineraries and calculate how much each trip will cost. We plan our vacations around whether we have (and can afford) a pet sitter and how much the trip will cost. This means that some years we go to Universal or overseas, and some years it is mostly day trips to surrounding areas depending on how much money we have available. Figure out what you ‘need’ to make you happy and try to find a way to work it in the budget. This will also help make sure you stick to the plan.
*Savings Tips*
- You can use the money earned from credit card points to help pay for some of your ‘extras’. My 3-day birthday trip to Kentucky last year was paid completely this way.
Time to Save
Now it is time to determine how much money will go into savings each month or paycheck. When your paycheck comes in, transfer the money out right away or have it taken out automatically. This will help make sure that you do not spend it on something else. 2020 has taught all of us the importance in having a savings account to fall back on.
Pay Off Debt
Finally, if you have debt, you need decide how and what debts to pay off first. Everyone has an opinion on this. To save the most money of course, you pay off the debt with the highest interest rate. I believe that the order should be tied to what motivates you more. I am a ‘cross it off my list’ person. If I have a list of debt and I am not able to cross anything off it for years, I become defeated and it usually results in me falling off the budget wagon.
When I started becoming serious about paying off my debt, I had 10+ different debts that I had to pay off at any given time due to pure bad luck and having no savings. I had accounts with several car repair places, best buy (computer needed for school), and credit cards that helped with more car repairs and keeping me fed. I had a car payment, and at one point 2 student loans that I had taken out to cover not being able to work for a few months because of a bad car accident. I did not think I would ever get out of debt (my career choice paid poorly) but I kept trying.
I prioritized paying off the amounts that had the least owed at the beginning. It may not have saved me the most money in the long run, but I was able to erase debts off my list which made me feel great and kept me motivated to keep going.
Another thing to look at is to see what would make the biggest difference in monthly bills. If the minimum payment is $75 for one, but $500 on another, it would help the most to eliminate the $500 monthly bill. This is what we are doing with our last two debts. Now that we are down to one consistent income, having an extra $500 a month would make a gigantic difference. So, in this case, we are paying the bigger debt off first to free up more money each month.
Decide what will keep you the most motivated and make your plan to pay off your debt from there. Do not forget those special interest loans and credit cards. Make sure you are paying the minimum payment to ensure the total is paid off in the specified time. If you do not pay them off in time, the penalties are huge with the back interest rates that they add on. You can also consider taking advantage of the ‘no interest for a year’ credit card transfer deals. If after the year is up, the interest rate is higher than what the debt currently has, only transfer what you can pay off in that years’ time. This method can help speed up the process of paying things off by saving money on the interest that accrues. You do have to pay attention to any extra fees and special rules to make sure that it will in fact save you money.
Budgeting is a Long Game
Budgeting is not fun, but I cannot stress how important it is. Dave Ramsey said, “Live like no one else now, so you can live like no one else later” and this is something that I wholeheartedly agree with. We may not go on as many trips or out to eat as much as some of our friends, but we have been able to do other things that they have not been able to do. By prioritizing paying off debt and living within our means, we have been able to weather many a financial storm from surprise surgeries to having the freedom to quit a job in an unhealthy work environment. There will be unexpected expenses that come up but just remember to be flexible. Budgeting and paying down debt are a long game, but you can do it!
Do you have any budget tips? If you have any questions or need encouraging commentary feel free to drop a line!
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