Budgeting for Beginners-a step by step guide to making an effective financial plan

Oh, honey. I feel your pain right now. You are likely overwhelmed, can’t make heads or tails of all the numbers that are floating around, and don’t know where or even why to start. Well let’s cut through some of that chaos, shall we?

Step 1: Prioritize

Before you can be successful in any difficult goal, you need to identify why it matters. Everyone’s why will look different, but at the heart, we all want the same thing: to live life unhindered by the stress of money.

Where you spend your money is often where you spend your life.

Whether you’re writing your very first budget, scrambling to figure out how you got so far off-track, or are ultra-organized and checking in quarterly, identifying your priorities is a crucial step in the process. Your priorities dictate your spending, and they should! Because where you spend your money is often where you spend your life.

Ask yourself some questions:

• What makes you feel like you?
• What do you really look forward to every day/week/month?
• Are there areas of spending that feel out of control?

Keep in mind that none of these answers have to be set in stone. Life changes, priorities change, and budgets change along with them! But we want to find your priorities for this stage in your life. Budget for who you are, not who you think you should be.

Cut the areas that are not important to you, so that you have room for the things that bring you joy, even if those things seem “frivolous” to other people. For example, my husband is a car nerd, so whenever possible, we make sure that his “Datsun fund” is worked in, even when it means cutting other things-even our grocery budget. As much as he loves fresh fruit, having the ability to work on his car means more to him than having mangos for breakfast.

Budget for who you are, not who you think you should be.

Now that you have an idea of which areas need to be prioritized and which can be reined in, we can start to piece this together.

Step 2: Review

Personally, I like to start by looking at my recent bank statements–at least 3 months worth. I check the recurring, set bills (mortgage, internet, car payment, etc.), and make note of any changes. For example, my car insurance payment is always automatic, and always subject to change because of my husband being a car nerd. He’s moving things on and off the insurance as he buys, sells, upgrades, or just moves to a different vehicle with a new season.

There are also recurring bills that change from month to month, usually utilities. If you live in a cold climate, your electric bill is liable to increase during the winter. It may seem like a small thing, but if you’re headed into a new season, try looking back at what those bills were last year to give you a better starting point this time around. Don’t set yourself up for failure by rounding down, or just assuming that your bills will always be on the low end. At the least, average out a few recent months to make sure you have a grasp on what each bill is honestly costing you.

Make sure you have some some coffee (or tea, or wine, or whatever makes life bearable for you), and settle in to slog through the swamps of spending.

The most tedious part about setting a budget (for me) is sorting through all the transactions and receipts and finding the small stuff. We use one credit card almost exclusively (except for Jesse’s car-related purchases, which have a separate bank account), so everything is pretty much in one place, which helps a TON for us. (It also means we’re earning Amazon points, which is kind of like my mini spending account, but I’ll talk more about that later.) So set aside an evening, or an afternoon, or get up super early, or whatever works for you. Just make sure you have some time and some coffee (or tea, or wine, or whatever makes life bearable for you), and settle in to slog through the swamps of spending.

Step 3: Categorize

We are making progress! Do you feel it yet? You are on the home stretch, now. This part is where you take all those piddly little transactions and give them a category. These categories can be as specific as you want, but I would advise against being too general. For example, while I have separate categories for internet, electric, and garbage, “utilities” is also probably fine, depending on your situation. But it would be pretty broad to lump those along with your insurances, cell phone, and car payment into a “bills” category, and wouldn’t give you a very clear picture.

I also have categories for “household”, “personal”, “groceries”, and “restaurants”. These categories essentially separate essential from non-essential, which is how I determine where to make the first cuts. If I know that I’m spending $200 on restaurants and $400 on groceries, it’s easy to see that I can cut some (or all) of the restaurant budget, without affecting our groceries. Whereas if I simply had “food”, it would be hard to see how much I can save by not eating out.

Step 4: Fruit Ninja-but with money, not mangos

Embrace your inner ninja, friend, because it’s time to slash some money-fruit.

(That analogy sounded better in my head…)

Remember the priorities from when we found your why? This is where those come back. Maybe your priority is to save every possible penny, so what non-essential spending can you cut? If you have some wiggle room, but can’t do everything (and none of us can, really) what is important for you to make room for? If there is something that feels crazy off the walls to you, or that you were shocked to realize how much money is getting sucked into the abyss of Starbucks or Target, try giving yourself a monthly limit for those areas.

If you were shocked to realize how much money is getting sucked into the abyss of Starbucks or Target, try giving yourself a monthly limit for those areas.

For a long time we have just cut eating out. Sure, it’s nice, but it’s not necessary or all that important to us, so it was an easy place to save when we need to. However, right now my husband is co-leading a men’s group that meets on Saturday mornings at a little diner. Making sure that he has the ability to buy breakfast once a week is now a priority in our budget, which means there’s about $60/month not going towards extra payments on our car. Not a huge deal, but you see what I mean. There’s always a give and take.

Step 5: Breathe

You did it.

You made sure your essential bills are covered, added in the things that make your heart sing, cut whatever you could/needed to make it fit inside your income. Congratulations; you have a budget.

Now you can sit back and watch some Netflix (unless that was something you had to cut…I apologize if that’s a sore subject right now).

Decide how often you want to track your spending (ie. daily, weekly, or monthly), and do it. You went to all the work of writing a budget, don’t let yourself down by not keeping up with it. But think of this as a prototype. You are not tied to this budget. Set a reminder to check in at the end of the month and reassess.

How do you feel now? Comment and tell me how it went!