In our first two additions of Fourth Friday Financial (FFF) we covered communication and the importance of having a written plan. For our third installment of FFF, I thought it would be helpful to discuss at a very high level “how to” go about creating a budget (written plan) . Let me say right up front that this is going to take some time and initially you will likely feel overwhelmed. But – I promise once you build and refine your budget it will require much less time and effort.
Tips for Creating a Budget
We like to use the approach Dave Ramsey has perfected as part as his Financial Peace University (FPU) course. These two exercises will help you start the process of creating a solid budget.
Start by creating a “Quick Start Budget” – this will allow you to understand your spending habits per month. Take a piece of paper and write down EVERYTHING you have spent money on in the last month, and do the same for the month before- a couple months will give you a good baseline. This may mean that you need to start keeping a journal of all your spending per month so that you can get an accurate idea of where your money is going.
And please resist the urge to not include items you know you spend money on … so that daily cup of coffee from Starbucks needs to be included. This helps to show you where every penny is being spent.
Next use the information from the “Quick Start Budget” to complete a “Monthly Budget”. You need to make sure you have a good inventory of all your spending per month (that’s why the quick start is important). I have a very simple Monthly Budget Worksheet you can print here as well as a Yearly Budget too. (would you like one in a pastel color scheme budget printables instead? Sign up for my free e-newsletter and I will send you that version as well. Get the pastel set here.)
I love that Dave and his daughter Rachel have given “recommended” percentages for each budget category to get you started. If you don’t have the FPU course or Total Money Makeover book, watch the video to hear those percentages. For example, Food should be between 5-15% of your monthly take home income. Since Mary saves us on average between 30-40% on groceries by shopping smart, this category is lower than it would be if she did not work to use coupons/rebates/etc.
The end goal of your budget is to make sure your Income minus Expense is Zero. Don’t be surprised if your initial draft is negative – but you need to work to get it to zero. Which means you need to up your income, reduce your expenses or a combination of both.
Remember don’t try to make it perfect the first time. And for many of you, please do not let your feelings of discouragement keep you from moving forward. We would love to hear how you are doing or if you have any questions – just send us a note!
UPDATE JAN 2017- Speaking of Financial Peace University… We highly recommend taking this personal finance course- it’s truly a life-changer. We will be coordinating a class beginning mid January at Linworth Baptist Church in Worthington. You don’t have to attend the church to join us! See more details here or look for an FPU course near you.
Fourth Friday Financial (FFF) is written by Mary’s Dear Hubby Andy, because he was “voluntold”. 😉 We have been together for 2 decades and you will begin to see that our differences compliment each other well. Through this monthly series we hope you find practical information for taking control of your finances.
Find this on the LWSL Thrifty Thursday linky too!