I guess you do not need one, but I highly recommend you have one. I recommend you have one for your household and your business(es), if you run any. Budgets are not restricting. They are tools to help guide you toward your goals. They do not tell you what you cannot do. They tell you how you will accomplish what you want to do. I am not sure who started the rumor that budgets are only for nerds, or only for those who love Excel spreadsheets. To be honest, I can put together a super cool Excel document, but it is not because of that skill that I believe in budgets or create one every month. In my opinion, a budget is the key tool toward wealth building. Discipline is the character trait needed to execute on a budget, but your budget is the key to your wealth building.
The reason a budget is key to your financial success is because it outlines exactly where you are going with the finances you have coming in. I believe in a zero-based budget. This is a Dave Ramsey approach to budgeting. Our household has subscribed to this concept for 10+ years and it works incredibly well. Here’s how it works – the last day of every month I sit down and start my budget for the following month. I pay for Dave Ramsey’s EveryDollar App. It is $9.99 a month and I utilize it at least three times a month. There is other software on the market like YNAB and Mint, however I have found this software to work best for our family.
Establishing your first budget will be more intensive than it is now for us because we know through consistent and habitual spending what our expense categories will look like. If you are new to budgeting, sit down with a piece of paper and write down the following variables: monthly take home per paycheck (look at your most recent paystub, or on your bank statement, find your most recent deposit). If you are paid hourly or on commission and your income is not consistent, that is okay. This is just a place to start. Okay, you now have your income documented for all income sources in the household for one month. Next, start by writing down all fixed expenses. These expenses are the ones that do not change from month to month. This would not be what is pulled from your paycheck. Those are expense you pay either with a debit card, checking account or savings account. List these out. You will likely forget some, but that is okay. This is just your first draft of your budget. Once you have listed all these expenses and their monthly costs, subtract them from your total monthly income. What remains is your discretionary income. You will then take this amount and leave it in a lump sum for month one. I want you to work under this format for your first one to two months.
The reason for this thirty-thousand-foot approach toward budgeting is because 80% of financial management is about mindset. If you can understand how much money you have each month, know your required expenses and then how much you have left over at the end, you will be more likely to notice when you might be making a purchase that will result in you spending more than you have remaining.
Just start here and see where it takes you. Budgeting does not have to be 10 pages on an Excel spreadsheet with lookup features. Just keep it simple and notice more about yourself, your money management, and your emotions around your money.
"Creating a budget has been the greatest tool in our marriage!"-Amber