It's Payday: Now Let's Create a Budget

Paying off $68,000 in 13 months is no easy goal and it’s definitely going to take some major lifestyle changes.  Where should I even start? Probably the simplest place, which is creating a budget.

I know most of you probably had some sort of physical or emotional response to the idea of making a budget. Maybe you felt a sense of shame because you don’t know how or you know you should and you haven't been doing it.  You aren’t alone! According to Gallup Poll taken in 2013, only one in three Americans created a detailed budget.  

How do you get where you want to go if you don’t know where you’re starting?  First, we have to discover our spending habits and uncover our weaknesses.  Through budgeting, we’ll be making the transition from being on autopilot to "conscious spending."

There are also some of you who think of budgeting as a sacrifice.

In other words, you perceive having a budget as a loss or having less of something.  Let’s shift that mindset too! When you have a budget you gain a sense of control that you know where your money is going.  This sets you free from the stress of living with debt and invites the possibility of more happiness in your life.  

Creating a Budget:

Creating a budget is easy and there are many ways to do it.  I use spreadsheets and an app called Everydollar but there is no right way.  You can do it in a journal if you want and catalog every transaction.  It’s called personal finance for a reason. You have to find what works for you and stick to it.

I’ll include my spreadsheet here for your convenience. Simply enter all of your known fixed expenses and your ideal budget for your variable expenses like groceries.  The goal is for the balance (income-expenses) to be zero.  Every penny is accounted for using this approach, also known as zero-based budgeting. 

Check out this article on zero-based budgeting. 

If the result is a negative number, then this means you’re going into debt to support this lifestyle.  Go back and decrease the budget somewhere until you get the balance to zero.  Once you’ve done that you have a workable budget. Congratulations, you’ve taken the first step towards freedom! Now use the spreadsheet, app, journal or whatever works for you to track your spending.

How to stay on track:

Here’s what I did.  First, I automated all of my fixed expenses to be withdrawn from my checking account.  Then, I set up a second checking account with Simple.  This will be for my variable expenses like groceries, eating out and fun money.  Simple is great because there are no overdraft fees.  If I try to go over budget simple declines the transaction.

I decided on $400 per month for groceries, $100 for eating out and $100 for fun money.  Each month I decrease my food expenses by 10% until I reach my threshold.  I’m always finding ways to optimize my spending.

Fun Money:

The fun money category is for things I’m saving up for in the future.  What do most of us do if we want something?  We go out and buy it on a credit card or most likely these days just order it on Amazon Prime.  Then, we repay it back and sometimes carry that debt forward to the next month and month after that. Meanwhile, there are still things we want and so the cycle continues.  The idea behind fun money is you’re saving up before the purchase.  I can buy it when I have the cash saved up and it fits in my budget.  Otherwise, I'm living above my means and using debt to do it.  I’m working (aka slaving away) to pay for all the things I don’t actually own and I’m too busy working to enjoy them.  Quite the trap we’ve purchased our way into.

The Grocery Store Struggle:

Another area I was struggling with was the grocery store. Seriously, I love the grocery store, particularly Whole Foods and Trader Joes. It was clear that I had a spending problem and that problem was the grocery store.  So I stopped going to my favorite places and traded them in for regular grocery stores.  I also gave up buying organic and specialty items.  You know the ones labeled things like, "gluten-free," "non-GMO," "organic" and at least $20 per item.  In addition to these items, I reluctantly gave up sparkling water.  If you know me, then you know that one hurt.

Most importantly, I quit using my credit card for my grocery shopping.  I'm still trying to find what works best for me so this month I'm trying a Ralph's gift card to stay on budget.  The main difference is my $200 balance is decreasing to zero, in contrast to a credit card where the balance increases up to $200 and easily beyond.  

Using Cash:

"Different means of payment can actually trigger different levels of discomfort. Cash is the most uncomfortable, followed by checks, which requires us to write down the amounts and remember it.  Credit and debit cards hurt the least." 

Based on this research I should really be using the envelope system but I've already purchased a gift card so let's make it an experiment.  I'll use the gift card for the grocery store this month and $100 cash for eating out.  We'll see which works best for me.  The way the envelope system works is the cash you budgeted for each category goes into its own envelope.  For example, I'll put $100 cash in the envelope for eating out.  Then when the money is gone you have to wait until the next payday or take cash from another one of your envelopes but this means you'll have less money for that category.

Practice Being in Action:

That's it for now!  I'm going to practice being in action with creating and sticking to my budget.  Feel free to join me.  It doesn't have to be perfect.  How often in life do you try something new and it goes perfectly?  The point is to get out of the stands, be on the court, and be present in your life.  We've got this!  

Next time I'll talk about how I'm living on only 38% of my income so I can free myself from student loan debt and then rapidly start to build wealth so I can retire early.

Until next time,

Kristine