My husband and I made a New Year’s resolution about five years ago to get our finances in order… and we finally got around to it this year. Our main issue was that we have debt we want to pay off and there was always more months than money, so we never got any traction. I spent all of December reading blogs (including this Offbeat Home post), and financial guru guides, and sort of hobbled together a plan for us.
I started by actually tracking our spending. I just downloaded the transaction history for a month from our bank account (you could also keep a journal of your spending too). I dumped it all into a Google Drive Spreadsheet and then I categorized each transaction: food, gas, car payment, mortgage, restaurants, black tar heroin — you get the idea.
Then I sorted by category, and added each thing up to see how much we actually spent on each category a month (you can make a little pie chart too, if you’re into that kind of thing).
We were gobsmacked by a few things. Our most surprising was that we spend over $300 a month on tolls. We never really noticed because the payment auto-drafted. There were a few more places that we felt like we could do better, so we decided to make a budget.
Until this point, our budget was paying our bills and then seeing what was leftover and adjust our spending accordingly. Sometimes we’d stay under budget, most times we’d go a bit over. There was never really a plan.
After all the Googling and reading the budget, the process that clicked for us was the Zero Based Budget (full disclosure this is the budget that Dave Ramsey recommends.) The way it works is this…
Make a spreadsheet
You could do it by hand too. Start with your total income for the month at the top and then down the side you make a list of all of your expenses — preferably by priority or importance. (On the sample spreadsheet, the budget is on the second worksheet called “Budget.”)
On the example sheet you’d put your total take-home pay for the month or pay period in the green box. Next to each category you put the realistic amount you expect to spend (realistic is key) in the Monthly Budget column and you’ll get a running total of how much money you have left in the next column.
Spend your money in the budget first and make a plan for each dollar
This helped me to keep myself accountable, because in my mind I had already spent all of my money. I also added the last column on that sheet that tells you what percentage of your money you’re spending on each category (14.5% on Black Tar Heroin — I should probably see someone about that). I’ve got 40 cents left!
The last step of the budget is the most important
You’ve got to stick to it. If you said $200 on Food, you can’t spend more — because even though the money is in the account, you have it earmarked for something else.
If you have a partner you share finances with you NEED to do it together
Especially if one partner does the grocery shopping and another does the budget — you’ll have no idea what’s a reasonable amount to spend. From a relationship standpoint it’s good to have everyone involved (money fights are awful). If everyone knows what’s going on the communication about money is so much easier.
It gets easier
Your first budget will probably take you a while to put together. But since most things are fixed, or in the same range every month, it gets easier and easier as the months go on.
When the Hubbo and I finally got into budgeting ourselves it felt like we had gotten a raise and it assuaged some of the guilt that we both used to feel about personal spending (getting my eyebrows waxed, buying black tar heroin or video games). When we want to save for something bigger like a vacation or a new video game console we add a line to the budget for that savings account and allot the money each month until we can afford it (this curbs a lot of impulse spending we might have done on credit cards in the past).