In the previous blog we discussed the money mindset needed for a healthy budget. Once you’ve at least scratched the surface on money mindset, it’s time to get down to the actual numbers.
What you’ll need
Grab the following:
- The past 3 months of your bank statements, at a minimum
- A calculator
- A pen or pencil
- A blank calendar
- A notepad or 3 sheets of blank paper
- A candle, music (anything to make this time enjoyable and less stressful)
Why I prefer paper and pen over digital
As you might know, I am a pen and paper girl! Apps and programs are cool, but there’s nothing like connecting with your finances in a tangible way such as a handwritten budget. Think of your budget as an on-going relationship with your money. Do you want to delegate that to a computer? I know, I don’t! An app or program can assist/supplement a good handwritten budget, but there’s nothing like beginning with pen and paper.
Know your numbers
Begin to look over the bank statements you’ve gathered to see where you’ve been spending your money. Does anything stick out to you? Do you see any patterns?
I know when I first did this, I thought to myself, “Dang, I didn’t realize I grabbed drive-thru coffee so frequently!” I consider such spending, “leaks” that can bust a budget. Do you see any leaks while looking over your bank statements?
If you haven’t kept a budget in a long time (or ever) it’s important to begin with knowing your numbers. Where are you spending your money each month? My free Budget Starter Kit would be a helpful supplement to this process. You can find it here.
Visual payment calendar
Once you have a general understanding of where your money is being spent, think of your budget in 4 buckets – (1) fixed expenses, (2) savings, (3) extra debt payments, and (4) discretionary spending.
Take your blank calendar (like the one found in the Budget Starter Kit) and begin filling in one month of fixed expenses. This will serve as a visual overview of payments you owe others. You will fill in your pay dates (the days you get paid), your take home pay and each of your fixed expenses.
Your fixed expenses for the month will include those ongoing bills that you must pay (ie. housing, utilities, car, credit card(s), student loans etc.). Write down every expense/institution, the amount and its due date.
Next, it’s time to process your budget.
- Grab your notepad or one of those blank sheets of paper and a pen or pencil.
- Write your total monthly take home pay in the top right corner and on the left begin listing all of your expenses. You can begin by pulling those fixed expenses you listed in your monthly payment calculator.
- Next, it’s now time to allot money to liquid savings. Determine if you have 3-6 months of your fixed expenses saved, if not allocate an amount to savings. Please don’t underestimate the power of a cash emergency fund. It’s not if an emergency will/happens, it is when an emergency happens! Start getting prepared.
- If you have debt, this is where you’ll want to add extra to debt repayment above the minimum payment set out in your fixed expenses above. Get that debt out of your life asap!
- What you have leftover will be your discretionary spending. Ie. fun money. Spend it any way you please!
In the end, when you subtract your budget items (in 2-5 above) from your take home pay, you should get $0 – this is called a zero based-budget! If instead, you have money left over, assign it to a category. Will you put more to savings, debt repayment or discretionary? The goal is to not have unassigned money because you want to have control over every dollar in your budget. If instead you don’t have enough money to cover your monthly expenses, I’d suggest seeing how you can cut back on fixed expenses. Can you downsize your car or home? Can you cook at home more frequently?
How about investing? I truly think investing is a powerful tool for an abundant future, but remember this is for a beginner budget. We can get into investing in a later blog post, but for now, let’s keep it simple and begin here.
Rinse and repeat
Once you’ve laid out your initial budget (aka your Master Budget), it’s time to establish a daily and weekly check-in with your budget! I suggest a daily check-in to glance at the debits from your accounts each day to make sure there are no unauthorized payments.
I also suggest a weekly money date to recalibrate your budget to see where you’ve overspent or underspent and if any adjustments are needed.
Remember this is a living document that will need to be adjusted from time-to-time.