What feelings surface when you think about your financial future? It could possibly be making you anxious or concerned just by bringing it up. If you are not sure about your financial future, chances are that you are not alone! Research suggests that only one in three Americans have a budget. Many people are anxious about their finances but are still controlled by their spending habits that cause this anxiety. I can definitely say this from experience. Until about two years ago, I never budgeted my money or had no clue how to deal with my finances.
If you can relate, there is no shame in that! No matter your age, it is time to get your finances together and experience freedom! I have adapted many of this from Financial Peace University with Dave Ramsey. If you need some serious help with finances, I strongly recommend taking his class.
1. Calculate your total monthly income.
The first step is easy: Find your last paycheck to calculate your monthly income after taxes are taken out. This is the amount deposited into your bank account each month after tax deductions or your 401(k). If you’re self-employed, a college student, or just have irregular income, take a look at the past four to six months to create some sort of monthly estimate.
2. Make a list of all your fixed expenses.
Next, list all the expenses that are non-negotiable. Fixed expenses are things that are most important and you can’t go without paying. Think rent, utilities, and any payments you owe on on credit cards or other debt. Don’t forget about yearly expenses like insurance or other things! With those, divide the total by 12 and calculate that into your budget as if it were a monthly expense.
My husband and I have giving at the top of the category. To me, this should be the number one thing to add in your budget. If you do not give to charities or other good things while you have less money, you probably won’t when you have more!
Include an emergency fund in this section—you never know what could happen with your job or if unexpected expenses come up! Dave Ramsey suggests saving up for a $1,000 emergency fund and then saving for 3-6 months of your expenses once you pay off any debt. Never plan to use a credit card for emergencies. That will put you one accident away from dismantling your plan.
3. Estimate all other expenses.
Okay, now that you’ve looked at your fixed or most important expenses, it’s time to look at your other remaining expenses. These are things like the gym membership, groceries, going out to eat, hair appointments, or money spent on pets. Try and think of all the ways you spend money. It might be good to take a month and just write down every time you spend money. Usually, things like getting coffee and buying gifts are overlooked but can really add up!
Below is a cash flow plan from FPU to help you get started:
4. Analyze your spending habits.
The goal here is to live below your means. So many people (especially our age) expect to live like their parents live, even though they are just starting out.
When it comes to spending habits, what are your weaknesses? My weakness is definitely clothes and other entertainment. When Patrick and I first got married, he wanted to allot $10 for makeup every month. To me, that was completely unrealistic! Men….. Our solution was to put all my fun /entertainment/ makeup/ clothes into one category called “fun money.” This just really worked for us so we stick with it!
I recognized that I was not being a good steward of money by going to the mall often and buying so many things I saw! To help with my spending habit, I started shopping only online and I ask myself if the things I buy will really be worth it. I find myself being a lot more selective when I know my purchase will come from my fun money.
This final step is crucial! You can plan all you want to, but if you do not put it into practice it is useless. Some questions to ask yourself: “Is there a better way to spend my paycheck? Am I being a good steward of my money?”
It is essential to reevaluate your budget every month, especially because new expenses will come up. For instance, you might need to get your hair colored. If that’s the case, make a note to put it in the budget for next month when you go to the hair appointment!
After you have filled in your expenses and accessed your budget, you are done! However, keep in mind this quote from Dave Ramsey: “being good at personal finance is 20% head knowledge and 80% behavior.” Time to go live out your budget!
I recommend adding the apps Mint and/or Every Dollar on your phone! Both apps allow you to link to your debit/credit card and actually forces you to put your expense into a category.
Have any other budgeting tips to share? Leave a comment below!
24 year old.
Mother of an adorable puppy.
Wifed up to the coolest husband.