Budgeting 101 - Part 2

I started off this series by encouraging you to set aside your excuses for why a budget won't work and asking you to join me in this budgeting adventure. I'm excited that so many of you are listening in and considering how a budget might help you with your finances.

Determining to step out of your comfort zone to try this budgeting thing is the next step toward financial success. When there's a will, there's usually a way. And we've certainly found this to be true in our own lives.

Before we got married, my dad challenged my husband and I to set down and make out a workable budget on paper. Talk about a great exercise to really get to know one another during our engagement!

I would highly recommend all engaged couples consider embarking on the exercise of budget-making. It may be eye-opening to both of you! Actually, whether you are engaged, newly-married, or celebrating your thirty-five-year anniversary, I'd recommend you consider this exercise--especially if you are struggling financially.

Where do you start?
Jesse and I began by talking through every expenditure which we felt was a necessity. Many people recommend writing down your income first and then divvying it up into percentage brackets for the various necessities and extras your budget might contain. If you are really detail-oriented and a numbers person, this might work for you. But for most of us, this would be overwhelming and we'd chuck the whole budgeting thing before we even began.

Sit down with your spouse (if you're married) and start by listing your basic living necessities: Tithe*, Shelter, Food, Clothing, Utilities, Transportation.

There are other items which are likely almost-necessities, but we'll get to those later. I want you to focus on keeping it simple! So we'll start with the big items:

*Tithe: If you are a Christian, I heartily encourage you to set aside 10% of your gross income first thing to give to your local church. By cheerfully giving of our firstfruits to God (even if we don't feel like we have extra for this!), we are demonstrating that God is the first priority in life. God will bless you for your obedience to His commands and your willingness to honor Him first with your finances and to selflessly give to Him. And God can make the 90% of your income go farther than you ever thought possible--I've seen this so clearly in our lives and in many other lives.

How much are you spending on rent or your mortgage per month? Write it down under the "Shelter" heading.

How much are you spending on groceries and eating out per month? Write it down under the "Food" heading.

How much are you spending on clothing per month? Write it down under the "Clothing" heading.

How much are you spending on utilities (electricity, water, gas bill, etc.) per month? Write it down under the "Utilities" heading.

How much are you spending on transportation (gas, car payments, car repair, etc.) per month? Write it down under the "Transportation" heading.

Now, for some of you, you keep meticulous records and know exactly how much you spend in all of those areas. For most, you probably have a very basic idea but don't know specifically. You might know how much your rent or house payment is, or how much your car payment is, but that's about it. What do you do then?

Well, start by giving a basic estimate of what you think would cover all of your expenses in that category for a month. This will likely not be totally accurate, but it's just your starting point. I'd recommend that you estimate high when you first start out--you'd much rather get to lower the spending in that category, than to have to raise it.

If you are paid weekly, divide the monthly amounts by four and set aside that much each time you get paid. If you are paid bi-weekly, divide it in half and set that aside with each paycheck.

If your income is variable, we'll talk more about how to budget on a variable income in the near future, but for now, I recommend you take into account how often and how much you are usually paid and then divvy up the paycheck accordingly.

If you have no income, well, we'll talk about that later, too. :)

When you get your paycheck, automatically deduct from it the above amount that you have alloted for each category. The main reason for doing this is to encourage you to begin developing the discipline of covering your most important expenses first. This will save you much financial headache and turmoil.

I recommend you go ahead and pay the rent or mortgage payment (at least write the check), pay the car payment (though I hope to convince you soon that you shouldn't ever take out a car payment again--ever! But that's for another post!), and pay the utility bills as soon as possible.

I recommend you take out cash for clothing and food and stick those in two different envelopes to only be used for food and clothing, respectively. If you've never used cash like this before, we'll talk more about the envelope system and why I recommend it later. I just encourage you to try it for now. If you're like us, you'll find that taking real cash with you to the store instead of a credit card or even a debit card means you find it much harder to part with and so you're instinctively more careful about your purchases.

For your gas, I'll let you decide what is best. We use our debit card for this and set aside a certain amount every two weeks. This allows us to pay at the pump and saves us some time and effort. It's especially nice when I need to stop for gas while I'm out by myself with the two girls. This is one of the few things we use our debit card for. If you prefer cash or check, use that. I don't recommend using a credit card for anything, but I'll leave that option up to you if you're still not convinced about shredding those up yet. Again, we'll talk more about that in the future.

At the end of the month, stop and evaluate how this system worked for you. Do you need to increase any of the categories because your estimations were off? If so, re-work your budgeted amounts. There is absolutely nothing wrong with doing this. In fact, it is to be expected. Your budget is not a strict slavemaster, it is a guideline and tool that grows and changes with you as you move throughout life. It will change with the ebbs and flows of life and when you are first starting out, it will need lots of tweaking.

If you have money leftover in any of the categories, roll it over to the next month. I recommend you wait at least a few months before lowering any category as you'd rather have some extra than not enough.

Once you feel confident in the above exercise of budgeting your basic necessities, you are now ready to move on in the direction of budgeting more or all of your income. We'll discuss that more in-depth in the next installment of this series. Stay tuned!

If you have a budget, I'd love to hear how you got started with budgeting and the blessings which have resulted from budgeting.

Originally published February 2008.

Budgeting 101 - Part 1

Budgeting... one of those words which conjures up dreadful pictures of living in a straitjacket, not being able to ever do anything fun or spontaneous, and always having to worry about pinching pennies.

One of the purposes of this series is to debunk the former myths that many have regarding the confinement and limitations a budget puts on a person and to show you how you not only need to live on a budget, you just plain can't afford to live without one... unless, that is, you decide want to never be able to get ahead, or never be able to enjoy saving up and paying cash for things you need or want (yes, your real, very own, hard-earned dollars and cents!), unless you really aren't all that keen on living on less so that you can save more, invest more, splurge sometimes, and--most importantly--to be able to give more.

So, I want you all to begin this series by committing to set aside your many excuses for why a budget won't work for you. Oftentimes, the excuses are just really manifestations of laziness or selfishness. You don't want to live on a budget, you don't want to wait and save up to pay cash for something when you can afford it, so you'll come up with a nice list of reasons why you are the world's exception in the case of living on a budget.

I hope that by the end of this series you not only want to live on a budget, you will be fired up and excited about the possibilities that lie before you if you're willing to put forth a little effort to make your money work for you.

Why am I such a big proponent of living on a budget? Because I know that were it not for our budget and the grace of God, we would very likely be up to our eyeballs in debt right now, barely making ends meet--just like pretty much all the rest of our law school friends are. We wouldn't be living comfortably below our means, we wouldn't have an emergency fund of six months' expenses in the bank, and we certainly wouldn't be on a savings plan to pay cash for a home in a few years.

Yes, we're frugal (I came into the marriage frugal, my husband has learned to be out of necessity!), but we would be miles behind where we are now without a written budget. I know this because we've done the math and we know without a doubt that having a written budget, giving every dollar a name, and putting it on paper, on purpose (to quote a few Dave Ramsey lines) has saved us literally thousands of dollars over the last five years.

Our written game plan for our finances enabled us to get through law school debt-free living on around $1000 per month, it enabled us to weather over three months of my husband's unemployment last year without us having to touch our savings, and it is currently enabling us to live on less than we make so we can save more and give more.

Think you might be interested in joining us on this budgeting adventure to see what incredible things it could do for your finances? Well, stick around because in our next installment, I'll be sharing about how we got started on this journey and how you can too!

Originally published in 2007.

Poll: Who does the finances in your home?

My husband and I are considering making a radical switch and having me take over the finances and bill-paying for awhile. Jesse has always done the lion's share of this because he's the nerd, he's good at it, and he likes it.

However, we're both thinking it might be good experience for me to try my hand at it. He also wants me to know how to do it in case something were to happen to him (he's always thinking of everything to make sure I'm well taken care of!).

Because I'm curious, I thought it'd be fun to do a poll for couples. So, take a minute to vote below:

This should be interesting!

Q&A: How much should a family of eight spend on groceries?

If you spend $40 a week on groceries, what do you think a family of 8 should spend on their food bills for the week? -Kate

My goal price range is $0.25-0.50/person for breakfasts and lunches and $1.00-$1.50/person for dinners. Basically, I shoot for it to cost around $2/person per day for food and household items. However, we don't actually spend that much since we have two adults and two little children and only spend approximately $38-40 a week on food and household items.

As our children grow older and we have more children, I'm curious to see how much we'll need to adjust our budget. Since we have not raised our budget by much in spite of our expanding family, I'm hoping we can continue to keep it low.

I would like to never go above $75/week--no matter how many children we have (and we're hoping for at least eight or more!), but I have to test that out with a brood of children before I can say for sure! One thing I do know is that the longer I bargain shop, the better I become at stretching our dollars.

When you are first starting out with creating a budget and a menu and sticking with it, I suggest you begin with something very doable. If you've never had a grocery budget before, just sticking with the same budget every week is a new challenge. Start somewhere but don't make it too hard at first. Keep it simple.

For a family of eight, maybe you could try to stick with $150/week? That would be about $21/day or about $2.60/person per day ($0.87/person per meal). Your eventual goal might be to cull that down to around $100 or less, if possible, but start out with something manageable. This is supposed to be a fun process not a stressful process! If $150 sounds way too low, try starting out with a $200/week budget. As always, starting somewhere is better than not starting at all!

Whatever you do, choose a budget amount that you think is possible, but might be a little bit of a challenge. Keep in mind your family's eating preferences, where you live and what the prices are in that locale, what your husband likes to eat (don't scrimp there!), how often you have others into your home for meals, and how much time you have available to spend cooking and planning.

I also think it is good to not have the budget so low that you can't splurge on certain things sometimes. We splurge every week on organic hormone-free milk and eggs from a local dairy. We also often use our overage from CVS to splurge on "fun things" like dark chocolate and ice cream. Always remember that the purpose of saving money is not to deprive yourself, but to make the most of what you have!

Once you feel comfortable with your current grocery budget and feel like you could do better, try shaving off a little more and a little more until you get your budget down to where you'd like for it to be. Remember, if at any time in the process you stop looking at it as a fun challenge and start seeing it as a stressful frustration, back off a bit and allow yourself a little more wiggle room.

As you gradually improve at your bargain-hunting skills, are able to stock up on good deals, and start planning your menu more based upon what is on sale at the store and what you already have on hand, you'll find it becoming easier and easier to lower your weekly budget.

What is your weekly budget and how many does that regularly feed? Do you include your household items in that budget? Are you satisfied with your budget or do you think you could improve it?