Unless you are a complete nerd (like me), budgeting probably sounds like utter drudgery. But if you are a nerd, you may already know that spreadsheets are fucking delightful. For you non-nerds, stick with me for a little bit. It’ll be worth it in the long run.
First, let me clarify. I’m not asking you to figure out how much of your paycheck needs to be put towards each bill each week or use an envelope system to squirrel cash away for each bill you need to pay each month. If that works for you, by all means, keep doing it. It certainly doesn’t hurt. But that’s not the intended goal for this exercise, this is budgeting 101.
What I want you to do, is account for all of the money you make each month*. Every single penny. What are you doing with it? How much of it goes towards needs and how much goes towards wants (we’ll get into needs and wants in a bit)? How much do you have left over each month? Or do you not have anything left over at the end of the month? If you’re negative, this step is even more important.
Also, don’t forget to account for items that you don’t pay for monthly (car insurance, estimated taxes, vet bills), and to budget for the average cost of items that are not the same every month (electric bill, heat bill, gifts).
If you use an ATM card or a credit card for the majority of your purchases, it should be fairly easy to track what you’re spending. Pull up the last statement you have and start categorizing. If you use cash for most of your purchases, this will be a little more difficult. You’ll need to start keeping a log and write down everything you buy for a month for accurate budgeting.
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Most of us waste a good amount of money every month and hardly notice. Sometimes, it’s a bunch of little things that add up – hitting the coffee shop on the way to work every morning, buying a drink or a snack in the vending machine a couple times a week, ordering lunch on Friday, a few drinks with coworkers after work. And sometimes it’s bigger stuff – spending $50 a week at Target on new clothes, or that $200 a month cell phone bill.
Little shit adds up very quickly. Here, a local coffee shop sells a medium coffee for $2.06 (including tax). If you buy 1 every work day for a month, you’ve spent $45.32. On 1 item fairly inexpensive item. And most of us do it with more than just 1 thing. That $45.32 could be going toward debt payoff, if you have debt, or into savings or investments, if you don’t. I’ll use this figure in a later posts to illustrate how big a difference that small amount of money can make. This is why budgeting is so important, it’s about accountability.
And now for the tough love. You don’t need most of the shit you are spending money on. This is where the needs and the wants come in. You need a roof over your head. You need food in your belly. You need clothes on your back.
You do not need a closet so full of clothes that you couldn’t wear them all in a month. You want them. You do not need to go out to dinner with your friends. You want to. You do not need that cheap throw away crap from Target or Walmart that seems to end up in your cart every time you go. You think you want it. For about 6 months or so, and then it breaks or you stop using it, and it ends up in a yard sale, or worse, a landfill (something we’ll get into in a later post).
You do not need the latest iPhone or Galaxy. You want it. Do you need a cell phone? Given that land lines are on the endangered species list, probably. But the one you bought last year or the year before is still perfectly fine. If you don’t have one or you’ve broken your phone and have to buy another one (notice I did not say new one), there are like-new used phones available in the second hand market for a fraction of what you would pay for a new one. Bonus, buying a used phone does not increase your monthly cell phone bill (something else we will get into in a later post).
Figure out where you’re spending money, and then take a real, hard, long look at it and determine how much waste is in there. You might be surprised.
To help you get started, here is a sample budget for us as an example:
And a link to a spreadsheet that you can use to create your own.
Happy spreadsheeting, nerds!
*If your income varies month to month, use the smallest amount you take home for your budget. If you can budget below that number, any additional income can be put towards debt payoff of savings.