I used to be terrible with money and it all started with my credit cards. I had used them years and years ago to cover emergency expenses, because I never had an emergency savings, and then I wouldn't have enough money to cover monthly bills, then I would have to use my credit card for regular living expenses, and so on and so on... a vicious cycle.
Note: This post has been updated as of June 26, 2014 with Reader Questions and answers! You can also purchase downloadable spreadsheets for the Debt Snowball Tracker and Budget Spreadsheet!
I finally was getting on the right track, and then I did even more research, including reading Dave Ramsey's books it all made even more sense.
There are many different ways to get in better financial shape and while I didn't follow just one person's advice, I decided to take bits and pieces of what I learned, changing it to work more specifically for me and made up this 10- Step Guide to Being on A Budget. I even have some spreadsheets you can purchase. If you purchase them, I am always just an email away if you need help using them or updating them down the road.
I have been on this system for years and I have way less financial stress than I used to. So without further ado I present the Ask Away Guide to Being on A Budget!
1. TRACK YOUR DEBT
Make a list of:
- each debt you pay down each month
- the due date
- minimum payment
- total amount you owe
Then put it all into an excel spreadsheet like I did in the above example. I set up formulas to subtract my payment and show what I owe in the next month. The only thing this spreadsheet doesn't show is finance rates, so just know that your actual amounts owed may differ when you factor in that charge.
**You can purchase a downloadable Excel Spreadsheet of this Debt Snowball Tracker for just $3 and it gets sent directly to your email! Just click the button below to purchase.
2. MAKE A LIST OF HOW YOU SPEND
Look at where your money has been going over the last few months and then figure out what categories you will need money for each month. Your debt is generally a fixed expense each month that can only be decreased as you pay it down.
So make a list of your expenses such as:
- Dining Out
- Fun money (movies, tickets to events, etc.)
- Pet Supplies
- Medical expenses (medical bills, prescriptions, co-pays)
- Vet Appointments
- Car expenses (oil changes, car repairs, inspection, registration)
- Gas for your vehicle
- Miscellaneous (random things here and there like maybe a coupon holder, new pens for at home, etc.)
You may need to print out a few bank statements and look at all your expenses and decide what category each one is.
Look at what you spent on them and figure out which ones can actually be thrown out.
For example - You NEEDED an oil change for $40 last month, but you didn't need the decorative car mats for $50 since your regular car mats are just fine. So add up in each category the expenses that you NEEDED.
This will leave you with a ballpark amount of money that you will put towards each category on a monthly basis.
3. MAKE A BUDGET
In order to make a budget you will need to first figure out your monthly income. This would be the money you make on a REGULAR set basis - like your paycheck.
Then, you need to list the categories from Step 2, and figure out how much to designate to each category every month. Add up the fixed expenses from Step 1 (credit card payments and car payments that are considered debt) and list them in the CREDIT CARD or DEBT category.
*It might be difficult to figure out how much to designate to each category, and you will find that when starting out, you'll end up changing the amounts every month until you find a number you are comfortable with. That's NORMAL.
Here is a (MADE UP) example of monthly amounts and categories:
Groceries - 300
Fun - 80
Savings - 40
Debt - 100 (yea right, this is just going from the above example)
Vet - 40
Car & Insurance - 100
Dining Out - 20
Miscellaneous - 20
Pet Supplies - 60
Medical - 60
Rent - 500
Cell - 80
Gas - 100
Parking - 155 (yes, it's extremely expensive to have a safe parking spot for work in the city)
I also included fixed expenses such as my phone bill, and my car insurance (which I lump into the Car Category in general).
Put all of these categories into an excel spreadsheet as a Budget.
You can set up a formula so that your monthly fixed expenses, and your budget category expenses all get subtracted from your monthly income, and it will show you what's leftover and whether it's negative or positive. You want to make sure you play around with the numbers until that Difference = $0. Yes, I'm serious. You want to account for EVERY SINGLE DOLLAR that goes into your bank account, so that you have no room for spending carelessly.
**You can purchase a downloadable Excel Spreadsheet of this Budget spreadsheet for just $5 and it gets sent directly to your email! Just click the button below to purchase.
"But, what if something out of the blue comes up that doesn't have a category?"
Well, if it's an emergency, then Step 5 will explain why you are covered. And if it's a category you didn't make up... then you may need to add it to your spreadsheet and figure out an amount to designate towards it each month. A great example is computer expenses. As a blogger it's a tragedy when my computer crashes and it can be a big expense to get fixed so I decided to designate $10 a paycheck to a computer fund. I may not use it for an entire year but it sure is nice to have. This kind of acts as a mini savings instead of just an envelope category.
You'll learn more in the next 2 steps...
"What if I have an expense that I pay online directly from my bank account and I can't leave $0 in? "
I have expenses like that too and instead of leaving $0 in your bank account, just leave the amount that you will need for your bills.
4. USE BUDGET ENVELOPES FOR SPENDING CASH- NO DEBIT/CHECK CARDS
|You can find an upclose look at this envelope system here.|
This is the fun part, at least for me because I love being organized. And instead of just using typical envelopes I opted to get a nice little organizer from Target and I eventually made an even cuter envelope system using a Filofax organizer, which you can see here.
I made tabs for each category that I deposit cash into every payday. No more spending with my debit card because it was a bad habit for me. Cash makes you way frugal and way more apprehensive to give it away. This means you will think TWICE. I can tell you first hand that this WORKS!!!!
On payday, I get cash from the bank and I put it into each category. I even have little pieces of paper in each pocket of my envelope system to track how much I put it in each month and when, and what I spent it on (including the receipts).
"What if I have money left in the envelopes at the end of the month?"
Well, you can keep it in there and that way you will always have a mini savings for each category. Or if you want to move it to another category go ahead. This is a great part of the system because you can do whatever you need to with it. Whatever works for you - no rules!
"If I am short in one category, can I take from another?"
This is a tricky one and generally I don't let myself. But sometimes when something happens like say my bill for a dinner with friends is over the amount I have in my Dining Out category. In this case I might grab from the Fun category because technically dining out IS fun.
But other than that, if I don't have the money in the clothing category for the shirt I want, even if I'm $5 short, I don't get it.... that's all part of the discipline process. And you know what? I'm still alive and thriving even though I never got the awesome shirt I loved. In fact, I end up forgetting about most things by the time I get home.
5. Build an Emergency Savings Fund
An ESF (Emergency Savings Fund) is the fund that you can tap into for emergencies such as but not limited to:
Expensive Car Repair
An Emergency Home Repair
The beautiful thing about it is that after you tap into your category for that type of expense, and you still don't have enough money, you ALWAYS have your emergency fund.
There are 2 golden rules to know about the ESF:
1. You always want to have AT LEAST $500-$1,000 in your ESF.
2. You ALWAYS replenish it after you take from it and you ONLY take from it when it's an EMERGENCY.
An ESF is NOT to be used for these NON emergencies:
A purse/pair of shoes/shirt you want but can't afford
A fund for splurging on a new HDTV
"I live paycheck to paycheck, there's no way I can come up with $500 for an emergency fund within a few weeks, NO WAY!"
That's what I said the second I heard Dave Ramsey say this. And then mid thought, he interrupted with something along the lines of "If your child (in my case my dogs) needed an expensive vaccination and their life depended on it, and they would not survive if they don't get this shot with a week, you WOULD find a way to get/make extra money for that shot, wouldn't you?" I answered out loud "YES!". So this emergency fund is no different.
EMERGENCY SAVINGS FUND
In order to come up with $500 for an emergency fund there are several things you can do... and I did all of these:
- sell things on ebay, Craigslist, yard sales, pawn shop
- sign up for survey sites (legit online survey sites that I posted about here )
- Get a second job or side job (I have my blog)
- Limit your fun/luxury expenses for a month (no pedicures or fun money, no dining out)
I went through my closet and sold clothes, I thought twice about every piece of furniture I owned and ended up selling a couple things via Facebook Yard Sale groups, and I sold large items such as Kitchen appliances on Craigslist. All the money I made went directly into my emergency savings fund.
I signed up to do sponsored campaigns on my blog to make extra income to go directly towards my emergency fund.
I even cut back on my fun money for a couple months to come up with the rest of what I needed in order to have $500 in my ESF.
You have NO IDEA how amazing it feels to look at my bank account online and see $500 in an emergency fund. Actually I have more than that because I have money automatically put in it from my paycheck every 2 weeks!
Build up your ESF first BEFORE you start paying down debts!
Once you have your emergency fund, you won't have to worry about using your credit cards for emergencies" so just pay the minimum payments on your debt and credit cards until your ESF is full.
Like I said before - the mini savings accounts are wonderful with the envelope system. You can make them temporarily and adjust your budget to include them. For instance, if you need spending money for a vacation planned for the end of the year, putting $20 a paycheck into the Vacation Spending Money savings is a GREAT IDEA.
**Side note: To get more for your money when you use spending money for trips - ask yourself DO I REALLY NEED THIS?
7. STOP SPENDING!
I know, it's hard to stop the things you are used to but trust me, it's possible! Stop going out so much and eating out so much, stop doing luxuries that cost you money... and if you can't stop them at least do them less often.
Some of the ways I cut back are:
- I purchased a $5 kit from Walmart that had all the scraper tools and files that they use in a salon for a pedicure, and I now do manis and pedis for myself. This saves me at least $50 a month.
- Use coupons and always search for discounts at www.retailmenot.com before you order something from a website.
- Eat less - opt for healthy meals and healthy snacks instead of tons of processed foods as snacks that you munch on in front of the TV late at night.
- Stop buying so much of the same stuff! Where what you have, do your makeup with what you have, and eat what you have before you go buy more. (This is also part of being more of a minimalist)
- Cut back on bills by going through them one by one and seeing if you can lower your cell phone minutes or data package (If you have Verizon, contact this guy who hooked me up with great deals on my bill - say I sent ya! ), downgrade your cable plan, save money on your electric by turning your thermostat down a degree (or up)
- Instead of meeting friends for dinner and drinks, invite them over, make cocktails, and have everyone bring an appetizer and then eat and drink on your patio.
- Attend local events instead of national events. Local BBQ's at vineyards, and local street fairs, local car shows, are much cheaper than going to a big fancy car show, a concert, or going to a huge amusement park numerous times each month.
8. STOP USING CREDIT CARDS AND DEBIT CARDS
I put all of my credit cards in my safe right away. No need to have them, because if my ESF is full than I can always use that instead of credit. I cancelled and cut up a few of my cards over the last year (1 every 6 months).
The only thing I use my debit card for is Gas since I don't want to pay with cash each time at the gas station, so instead of a zero balance in my bank account, I leave money in for the bills that get taken out of the account and money for gas.
Again, you probably can't pay your bills in cash so that's why you can leave the designate amount for each bill in your bank account as well.
Example - My phone bill is $80 a month so every payday I actually transfer $40 to a savings account that I labeled "Bills". Then when it's time to pay the $80 bill I make sure I transfer $80 back to checking.
And if you insist that you MUST build your credit score up by using your credit cards..see what Dave Ramsey has to say about that... it's okay if you literally make a purchase, then pay it off three days later... but do NOT spend beyond your allowance based on what you have in your envelope for that category.
9. PAY DOWN YOUR DEBTS
Do all of the things from step 6 to get money for your credit cards. Pay the minimum on all, except your lowest balance card. That way, you pay it down sooner, and feel more accomplished. So if you come up with $50 dollars a month that you have leftover in your budget when you try to zero down the balance, apply that to your debt payments.... in addition to what you were already paying as your minimum payment. Then when that cards paid off... you take the $50 plus the minimum payment on the card you paid off (say it's $25) so that's $75, and you apply that to the minimum payment on another card. It's called a debt snowball.
I apply any extra money I can to my debts. I sell stuff all the time, I put gift money towards my debt, I sold DVDs and CDs on Music Magpie to get extra money. I go at it so hardcore, and if I have extra money in my FUN envelope at the end of the month, sometimes I even put that towards my debt!
Remember, the sooner you get money together to fill your emergency fund, the sooner you can put any future extra income towards your debt!
**Don't forget you can purchase the Debt Snowball Spreadsheet below and if you have any questions about it along the way just email me!
Make sure that after you pay off your debts (or even while you are paying them off) you make sure you put money aside in a savings. You can have it in the same savings fund as your ESF, or a different one. I have $40 a month that goes into my ESF so even when I hit the $500 mark, money still kept going in there.
After a few years of chipping away at it - this finally paid off and I am DEBT FREE and you can read about how I did it here. still working on saving and paying down my debts but I am doing a great job.
Here was my timeline:
August 2012 - Started budgeting
December 2012- Paid my car off
January 2013- Used what I paid in car payments before to build up ESF right away
February 2013 - Paid store credit card off
March 2013- Paid another store credit card off
April 2015 - Became Debt Free!
May 2015 - Bought a house with my boyfriend
****If you have any questions or suggestions leave them in a comment below or feel free to email me, tweet me, Facebook me, etc. I am always here to help and I love sharing my experience to help other people. Seriously, feel free to email me anytime!
You can now purchase downloadable Excel Spreadsheets for my Budget Spreadsheet and Debt Snowball Tracker.
Budget Spreadsheet - $3:
Debt Snowball Tracker - $5:
Get the Bundle for $2 cheaper - $6:
And I have super exciting news - I have published a book all about finances.
Some good financial resources: