Budget Like a Boss: A 7-Step Guide to Understanding Your Spending
Before we get started, I want to get a few things straight:
A budget is not an instrument of Satan designed to steal, kill, and rob you of joy.
Repeat after me: You can have a fun life and still have a budget.
A budget is a plan to help you manage your finances and achieve your dreams. You control your budget.
Hopefully, you now see a budget as a plan to support your lifestyle and dreams, like quitting your job to become self-employed.
To create a budget, do the following:
1.Pick an online budgeting tool
The best budgeting tool is simple and easy to use without making you reach for a bottle of aspirin. It's the tool that makes budgeting easy for YOU. This can be anything from spreadsheets, budgeting apps, budgeting with bank accounts, or even a notebook and paper.
2. Calculate total household take-home income
Review your household's pay stubs to estimate your take-home pay. Don't overthink it; pick a number now and adjust it next month.
3.Review your prior months' expenses
Use your bank's software to review a month of expenses (use the last full month - like Jan 1-31 vs. Jan 15-Feb 15) or print your last statement.
4.Organize your expenses in categories
Below are ideas on how to categorize your budget. The goal is to get detailed enough to make you aware of your spending but not so detailed it gives you a headache:
Monthly Bills: Giving, Housing-Related, Transportation-Related, and Other monthly Reoccuring Bills
Non-Bill Monthly Expenses: Groceries, Auto Gas, Eating out, Entertainment, Personal spending money, Kids, Pets
Health-Related Expenses: Medical, Dental, Vision Premiums, Prescriptions, Other medical provider costs, Life Insurance, Disability
Things You Typically Spend Money On Throughout The Year: Car Related, Home Related, Travel, Gifts, Birthday, Kids, Pet care, Education/Training not paid by the employer, Professional Licenses/Certification renewals, Other future purchases, Down payment for a home, Future car
Savings: Emergency Savings, College Savings, Investments, Other Savings
Non-Property Debt: Credit cards, Student loans, Other obligations
5.Use your online budget tool to create a budget
If you used a tool that allowed you to connect your accounts, the budget should pop up automatically. If you manually enter the information, add your income and the expense categories you wish to track using the prior month's expenses.
The goal is for every dollar to have a category. This is sometimes called Zero Based Budgeting. Consider creating and adding a few dollars to a category called "buffer."
This amount can be used for expenses you may have forgotten about.
6.Track your spending for 30 days
Your goal for the month is NOT to have an accurate budget. That only happens with time, so expect mistakes and surprises. The goal is for you to do a budget and consistently track your spending during the month by doing the following:
Commit to logging in EVERY expense for 30 days.
Schedule time to review your spending and think of upcoming spending needs.
Give yourself grace. Confession: I forgot childcare for the first budget I did. This means our first budget was off by over $300 (which we spent). It was a mess, but we got better at it, and you will, too.
The #1 goal is consistency. Mistakes will happen, and that's OK. Success is consistently tracking your expenses.
7.After 30 days, review your spending vs the amount budgeted for:
Look for areas of overspending, expenses you may need to include in your budget, and expenses to adjust- up or down, or just get rid of- like that subscription for a service you haven't used in a year.
Once done, use those updates to create the next month's budget. Rinse and repeat. Be patient, it takes time and patience, but you will be a budgeting ninja before you know it.
Final Words
Don't get overwhelmed. Start simple. Rome wasn't built in a day, and neither will your budget. The longer you budget, the more accurate your budget will get. It's about consistency, not perfection.
Your budget helps you understand how much you actually spend monthly, which is critical to estimating how much you'll need to sustain yourself while growing your business.
If you're feeling stuck, schedule a FREE Job Exit call.
