I’ve noticed a confusing trend.
Why is it that most people in their professional life confidently manage huge budgets, create elaborate spreadsheets and account for every single dollar on a detailed spending plan. Yet, when it comes to their own personal finances, the majority of people can’t really recall their monthly household income, how much money they spend eating out, or how much they spend on basic living expenses?
Why is that?
I think it’s both simple and complex.
I think the biggest reason is fear.
Fear of the unknown
People are afraid of what they might discover when they take a good look at their numbers. Your husband might find out how much you’re spending on clothes. Your wife might find out how much money you are actually spending on golf. You might discover you are spending $1200 on takeout and Target and Matcha Lattes.
Fear of being controlled
Maybe you think if you crunched all of the numbers and created a spending plan each month, your finances would control you or you feel your spouse would control you. You don’t want to feel shackled and you fear losing a sense of freedom or independence.
Fear of not knowing how
Maybe, you just don’t know where to start. It all seems so overwhelming to you.
Regardless of what lead you to this place, it’s time friend. It’s time to take back the reins and gain control of your money once and for all. Because here’s the truth: When you make a monthly spending plan for your money and stick to it: you’re free. Truthfully, you’ll feel more in control than you ever have because you’re not avoiding or being intimidated by your money.
You may even feel like you got a raise.
Most, not all, but most who think they’re living paycheck to paycheck are usually not living on a budget. But when they finally crunch the numbers, they realize they actually make a decent amount of money. And, with a little discipline, they can have a lot left over at the end of the month. That realization alone is worth the temporary discomfort of the process.
Dave Ramsey says,
“If you don’t tell your money where to go, you will wonder where it went.”
For most of us, it’s not the outlandish purchases we make, it’s the $25 here and there that kills your greatest wealth building tool – your income. We’ve all been there.
But here is the truth:
Every single person, regardless of how much money they make, should be creating a monthly spending plan for their finances.
Why?
It will drastically relieve stress and set you up for a successful future. A future where you can save, spend and give without worrying about living paycheck to paycheck.
Your finances don’t have to make you feel small. You can start today to gain control. In fact, you can start right now. This. Month.
Here is the simplest way to start your monthly spending plan.
1. Gather the information
Attached below a quick start Budget PDF form. It’s from this book & has categories for everything.
Quick Start Budget.
Now, write down what you spend each month on:
Giving
Groceries
Clothing
Mortgage/Rent (include taxes and insurance)
Utilities
-
Electricity
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Gas
-
Water
-
Trash
-
Phone/Mobile
-
Internet
-
Cable
-
Subscriptions i.e Netflix, Hulu, etc.
Transportation
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Car Payment
-
Gas & Oil
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Auto Insurance
Personal
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Life Insurance
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Health Insurance
-
Child Care/sitter
-
Entertainment
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Eating Out
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Gym Membership
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Other ___________
Add up the total from all of these categories and CONGRATS, you have created the first leg of your spending plan. You’re a rockstar. Go drink a Matcha Tea Latte. Applaud your money savvy self. Now move on to the next step.
2. Figure Out Your Monthly Household Income
Paycheck 1_______
Paycheck 2_______
Paycheck 3_______
Paycheck 4_______
Once you have the total of all of your paychecks (after taxes), you now know how much money you bring in vs. how much money goes out each month.
Basic 2nd-grade math teaches us that the amount of money going out has to be less than the amount of money coming in. Remember those < > symbols? Did anyone else’s 2nd-grade teacher have them pretend they were crocodiles? I digress.
3. Create your first monthly budget
Deep breath. You’ve got this.
If you are single, then you do this step on your own. If you’re married, do this step with your spouse. You may fight over this. At some point, it will not be fun. You may be shocked at how much the other person spends at Target or *cough* Ulta *cough*
That’s ok. You each have an equal say and it’s vital you work together for this to be successful.
Next, take your total monthly income and try to bring that amount to zero by subtracting each expense from your total income.
Ex: If you make 4,000 dollars per month, your goal should be to get that 4,000 all the way down to zero. Meaning if you subtract all of your expenses and you still have $450 dollars left over you
-
Do a happy dance
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Decide where that extra $450 is going to go.
If you have debt, I suggest you list all your debts (other than your mortgage) smallest to largest and put that money towards paying off your smallest debt first. That may seem counterintuitive. But little wins give you momentum to keep going. If you have no debt other than your mortgage and have no “Emergency Fund,” then put that money into a 3-6 month emergency fund. If you have a fully funded emergency fund, (3-6 months of total living expenses should an emergency arise) start investing this money into a retirement account. (more on Dave Ramsey’s baby steps to financial freedom here)
The point is this: You need to give all your “extra” money a name or it will disappear one nickel and dime at a time.
It is amazing how small your life can feel when you don’t have control of your finances. Don’t let fear or pride keep you from creating a monthly spending plan for your finances. You’ve got this! Your life is NOT small! And your finances don’t have to boss you around.
Take back control today!
Looking for more budgeting posts? This is a good one.
Until next time,
Chris
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