Budgeting: Beautiful Freedom

OK, so I promised the other day that I would reveal the reasons that budgeting is FREEING, not constricting. Obviously, I’m biased. I LOOOOVE budgets, and reconciling, and logging, and measuring trends and percentages. This is true fun for me.

But I am going to try to think like a normal human being, putting aside all of my quirky accountingness, and explain why, to a normal person, budgeting could have a positive impact on their life.

I know, I know, I know – this blog doesn’t fit under my goal blog-type of “entertaining”, but fiscal responsibility and living debt free are huge passions of mine, and I believe that there are many people out there that WANT to know what steps to take to get on track, but just don’t know how. Hopefully at least a few people will find it helpful!

I am going to try and prove five benefits of budgeting:

1. It takes away a large portion of the guilt that goes along with spending money in general
2. It takes away a large portion of the arguments that happen over what to spend money on
3. It helps you control your spending guilt-free by helping you be more aware of WHAT you spend money on.
4. If paired with a little bit of planning, it can help you never have to worry about overdrawing your checking account.
5. If you have debt that needs paying off, there is no better way to make that happen than to have a budget.

So here’s the question: when you go to the grocery store, or any store, or make any purchase, do you always feel a little guilt in the back of your mind, or a little question like “do we have the money for this?” or “is this going to overdraw the checking account?”

If so, budgeting will change your life.

Most people assume that if they make a budget, they will feel constricted by it and like they are being “told what to do”.

But what budgeting really does is it helps you know what you have, where you can spend it, and how to make it “all work out” so that you don’t have to feel guilty every time you spend a dime!

Let’s say you spend $300 at the grocery store every month. If you know beforehand that you’ve got $300 set aside to spend at the grocery store, then you don’t feel guilty spending $25 because you know where it’s coming from – it’s coming from the money that you set aside for that very purpose!

Also, I highly recommend that you set up a budget for every area that you spend money, whether you think it is “wise” that you spend money there or not. For instance: going out to eat. When Chris and I first got married, we didn’t give ourselves an out to eat budget category because we were young and poor and figured that we shouldn’t be going out to eat anyway. However, being the young and carefree people we were, we of course DID go out to eat, and it would all just get lumped into our “misc” account and throw us over budget every month. Then we realized that we would just do better to face up to the fact that we WERE going to go out to eat and fit it into our budget so that we weren’t blowing our budget by doing what we were going to do one way or the other. Then, all of a sudden, we knew that we didn’t have to feel guilty when we were eating out, as long as we stayed within the budget!

Also, it works great for each person to have their own discretionary budget. I have my “misc” money and Chris has his, and Ali even has hers (although it goes to buy things like diapers and wipes). This way, we NEVER have to question what each other spends and have those lovely arguments about priorities and not seeing how it is more important for him to buy Wii games than for me to buy more clothes. Chris can spend his budget on whatever he wants to, and I can spend mine on whatever I want to, and we literally never have to fight about it. Also, we never have to ask each other’s permission to buy something, as long as we know that it is within our budget.

So how do you go about setting up a budget for the first time?

It’s very easy. I have helped about a half dozen people get started on this in the past few years, and here are the steps that I use:

1. Figure out what budget categories you need by thinking about what you spend your money on. i.e. –
Tithe
Groceries
Gas
Out to Eat
Bills
If you have debt that you are working towards paying off, Debt
Her Misc
His Misc
Kids Misc or Allowances
Family Misc (covers things like toiletries, hair cuts, pet food, and other random unavoidable expenses)
Gifts
etc.
2. Get out your checkbook register or receipts or bank statement (whatever is easiest) and add up all of the expenses that you had for the last month for each of the above categories. For instance, add up all of your grocery receipts and put the number down, then add up all of your gas receipts and put that number down. If you really want to make sure your numbers are accurate, do it for the last 3 months and then divide it by three to get an average.

3. Analyze the numbers that you came up with. Do you want to spend that much on groceries? Do you think you’ll be spending MORE in the future for some reason? Do you want to cut down anywhere? Do you want to pay more on debt?

4. Figure out your monthly income.

5. Open up the Holy Grail of Budgeting, my beloved Excel.

6. Have an “in” row, and plug in your monthly income figure

7. Have an “out” row for each of your budget items, and plug in the numbers that you came up with in steps #2 and 3

8. Create a totals row. Subtract the Out from the In.

9. DON’T PANIC!!!!!!!!!!!!! Every time I have helped someone with their budget, it almost always starts out in the red. That’s just a sign that you REALLY DO need a budget, or you will really dig yourself in a hole over time. If you AREN’T in the red, then that is a great sign!! Especially if you have any debt that you want to pay off. You can use that extra money to help you get there!

10. Reevaluate your budget numbers, if need be. Figure out where you need to cut back or if you can add to your income. This part sounds depressing but it’s really best to know where you are, even if it’s bad, then to go through life clueless because you don’t want to face it. At least if you know where you are, you can come up with a game plan to move from that point.

Those are the first steps.

After that, I create tabs onto the spreadsheet to log all spending (instead of using a checkbook register – it’s much easier to log what category things go into) and to show where it is in the budget. Because I’m a total budget nerd, I log all of our receipts and income once a week so that we always know where we are.

We are not, however, militant on sticking to the actual budget number. Some months we go over in one category and under in another – our budget numbers are more like “guidelines”. Some people are militant, even to the point of using the “cash method” where you have cash in different envelopes for each category, and if you need this kind of discipline, it works great.

As far as any debt goes, once you have a budget and know what you can put toward your debt, you can use your all powerful Excel software to lay out a debt payoff plan, and see that it might not take nearly as long as you thought if you have a plan for it!

If you actually read this whole post without running away with your hands over your ears screaming, thanks! :) I hope it helps. If you want to set up a budget and have any questions, let me know! I’d be glad to answer them. I can also send you an entire budgeting template in Excel if you would like it. Hope it’s as much fun to you as it is to me!!!! I know. . . that’s impossible. ;)