Budgeting is hard. I’m just going to say that right now. We work hard and want to unwind and spend what we want, when we want.
The problem with spending what we want, when we want is that we will run out. Fast. And before you know it, you will run out of money to pay for the important things, like rent/mortgage, utilities, and food.
What if you could have the best of both worlds though? Pay your monthly bills, allocate your money where you need it, AND have some leftover to spend on fun things?
Not just that, but also get rid of that heavy feeling on your chest when you’re scared to look at your bank account.
This is 100% doable for anyone.
Do you have an irregular income? This is doable for you.
Do you have a lot of money coming out each month on bills? This is doable for you.
Is Christmas right around the corner and you have nothing saved? This is doable for you.
It’s all about taking control of your money, instead of letting your money control you.
Here’s the breakdown of how to get control of your finances.
Step 1: List out all monthly expenses
This first step might take you the longest. It should include everything you pay per month that gets you by. Think rent/mortgage, utilities, food, cell phone, debt payments, cable, internet.
It involves looking back at your bank statements, any receipts that come in of an auto-draft, and looking into your online accounts (think credit cards, utilities, and student loans).
Write out what day of the month each of your expenses come out, as well as how much each expense is. Is it an irregular expense (like your electricity)? Write down an estimated amount for it. Typically, you can see the bill before it comes out of your account, so you can adjust your budget ahead of it coming out.
For example: we live in Houston: the land of heat and humidity. During the summer months, our electricity climbs pretty high. During the winter, we mostly use gas to heat our house, so our electricity usage stays pretty low. Keep things like that in mind when adding an estimated amount in.
Step 2: Calculate all money (take home) coming in per paycheck
This step is very straight forward: just list out how much you bring home each paycheck per month.
Do you have an irregular income? Base this number on either the smallest paycheck you have made in the last 6 months OR using your base pay. Using your base pay works well for hourly employees that are guaranteed 40 hours/week, but could (and usually do) get overtime.
Again, you can adjust this as it gets closer and you know the amount.
It is crucial to go off of the smallest paycheck so you do not allocate money you will not get. It’s better to have extra money to throw at debt, savings, or fun money.
Step 3: “Pay” all known expenses
This is where you combine the last two steps. There are so many great PDFs and spreadsheets online to help you organize this, but my favorite by far is this one.
Take the amounts you added to step 2 and add to the income boxes for the month. If you are using the spreadsheet I recommended, you will see that amount spread down in the gray boxes to show how much you have left of that paycheck. If not, you will use what works best and subtract from the income you put in.
Now take the amounts you added in step 1 and fill in your monthly expenses, when they should come out. Is your electricity bill coming out on the 23rd of each month? Add that bill to come out from the paycheck the week just before the 23rd.
Once these known expenses are added, you will see how much you have leftover each month, which leads us to the last two steps.
Step 4: Add in some play money
I’m not talking hundreds of dollars each paycheck here. But it’s also not realistic to have no play money each month, because that can and will lead to spending outside of your budget.
The amount you allocate to play money depends on where you are in your financial journey. Are you paying off debt? Stick to a smaller amount in play money so you can knock out that debt. Are you further along, with just a mortgage left to pay off? Give yourself a little more play money.
This money can be saved up over time to use on a bigger fun purchase, or just fuel your weekly Starbucks addiction.
Step 5: Zero-based budget
The final step is to allocate every dollar left in your budget. As Dave Ramsey calls it, “giving every dollar a name”.
This will all go toward your goal: if you’re paying off debt, throw all of your extra money at the smallest debt. If you’re on baby steps 4, 5, and 6 (to be completed simultaneously), then throw the extra money toward the principal on your mortgage. Step 3 (building an emergency fund)? Build that emergency fund up as quickly as possible to have a safety net.
The goal here is to allocate all of your money so it goes somewhere productive.
When you start leaving the leftover money to sit in your bank account, you allow yourself the freedom to use it blindly, which puts you right back where you started.
You are working hard for financial freedom. Don’t let that set you back.
You can do this. It feels overwhelming at first, and that’s because it is. Finances play a lot of roles in our life: emotional, mental, and otherwise.
But it’s not so overwhelming that you can’t do it. Trust me: I have had my fair share of retail therapy. We once walked onto a car lot “just to look”, only to walk out with a brand new Jeep. Stupid, right?
We still were able to pay off over $100,000 in debt in around 2 years. Utilizing exactly what I just outlined.
It’s doable. You are capable. You can do this.