Money Matters – Step 1: Making a Budget

If you have unlimited funds, then you probably don’t need a budget. I don’t know anyone who qualifies for this statement. Not even the federal government.

Not knowing where your money gets spent opens the door for money to freely escape out of your wallet. It also invites other people to reach in and try to grab some $$. You need to live on less than you earn if you ever want to get ahead.

The first step to gaining control of your personal finances is making a budget. This allows you to designate where your money is spent as well as track different categories to see if you are overspending (or underspending) on certain expenses. This skill is something that ought to be taught in school, but it’s not. I remember “Home Economics” class in 7th grade, it covered basic cooking, basic sewing, basic cleaning, etc. There was no “basic finances”. And through high school I was an A & B student, taking algebra, trigonometry, and calculus; yet NONE of these prepare a student for the real world when it comes to money management. There are many programs, apps, and worksheet templates that are available for free. Dave Ramsey has a simple to use budget called “Every Dollar“.

Here is a simple budget sheet that I developed. It shows an entire year of budgeting

Basic_Monthly_Budget

And here is an interactive version of the budget sheet. You can customize the names and amounts to match your budget.

Monthly_2021

Start off with the obvious stuff … Input your monthly income, whether it’s salary, side work, social security, etc. The form adds up the total for you.

Now start to input your expenses. Every dollar you spend has to be listed and the form will total it up.

Now press the button to see your debt snowball

Spending more on one category means you have to spend less on another. It’s a tradeoff. And it can help you identify expenses that really are “frivolous” and not needed. Where is your money best spent? How much is too much for each category? There are some sound financial rules-of-thumb, like “Don’t spend more than 25% of your income on housing”.

There are lots of things that some might consider a “necessity” but really are not. And many humans try to justify their expenses by twisting logic around until it matches their desires. That coffee-store cup of java might save you a little time in the morning, but the cost of it adds up very quickly. Once you have become accustomed to that expense, it’s tough to tell yourself “NO!” the next time you see their sign waving at you.

You HAVE to be diligent.

To quote a businessman that I once talked to: “Watch every dollar as if it was your first”.

Now it’s time to move forward: Step 2: Start an Emergency Fund.