One of the most important keys to financial success in any situation is maintaining a budget. Budgets can be intimidating because of their complexity and many people don’t even have one. If you have any hope of one day reaching financial stability, though, you need to buckle down and do it.
What is a budget?
A budget is a snapshot of your regular income as compared to your expenses.
How to Build Your Budget
Start with a calendar. You can use my free printable budget calendars or whatever calendar works best for you. Using a visual is incredibly beneficial because it puts into perspective how long you will have to make your money last. It also helps keep track of what bills have been paid, which have yet to be paid, and any special events that may require additional spending.
Mark down your paydays on a calendar and how much you will receive on those days. Then add it up and mark down your monthly income.
Next, make a list of all of your monthly bills. List first the ones that you can’t do without, like your rent/mortgage and utilities, and list last the luxury expenses like Netflix or Spotify.
Add up the cost of all of your monthly expenses and compare it to your monthly income. Hopefully, your income is greater than your expenses.
If your income is not greater than your monthly expenses, it’s time to get your priorities in order and start making some cuts until your income is greater.
I suspect that there is a very strong chance that you will need to make some cuts. As you’re making those cuts, take a look at this pie chart. Stick with these guidelines. If you exceed these percentages, I can 100% guarantee that you’re going to find yourself in financial trouble sooner or later.
After you’ve looked at your income and expenses, it’s time to lay it all out on the calendar. With your bills in front of you, write the name of the bill on the date it’s due. Depending on your pay schedule, you may want to arrange it so that the majority of your bills come out the first of the month. I prefer to space out the large payments and fit the smaller ones in accordingly.
If you are already in a set pattern of due dates that don’t work for you, call your providers and servicers. They will work with you to change your due dates. They may give you some trouble but their ultimate goal is to get paid so in most cases, they will accommodate your request eventually.
Work at it for a couple of months and make adjustments where necessary. It’s going to take some time to get it right but you’ll eventually get there. Don’t worry yourself sick over it. You’re going to make mistakes but you’ll learn from them.
So there ya have it folks.
Building a budget is essentially a giant puzzle and you have to mash those pieces in there without breaking them. A well managed budget is something to be proud of but it takes time. I’ve been actively managing a budget for close to five years now and I still make mistakes but I’m much more comfortable knowing that our bills are well organized and taken care of.
Maintaining Your Budget
Now that you’ve built your budget, it’s time to maintain it. Like I had mentioned before, budgets are complex. They have many moving parts and those parts are often changing. You don’t want to let all of your hard work go to waste by thinking that a budget will take care of itself. You have to constantly work at it. Here’s how.
Pay attention to the charges
You absolutely, positively need to pay attention to your bills. The ones that I am the most diligent with are the medical bills. Medical facilities and insurance companies are notoriously sneaky. I personally recommend that you take some time getting to know the ins and outs of your insurance plan. They are complicated and will likely take you some time to understand. Until you understand it completely, call your insurance company about EVERY SINGLE MEDICAL BILL you get. There will be times when the doctors office billed a service incorrectly and can be taken care of easily by the insurance company. I’m being totally serious, never ever pay a medical bill without clarification first. It will save you hundreds, if not thousands of dollars.
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Watch your usage
Keep an eye on your utility usage. If you notice a drastic increase in your water usage, you may have a leak somewhere. The same goes for gas and electric. A drastic increase in usage will increase your bills. By keeping an eye on it, you can catch those issues right away and have them taken care of. While a good plumber will cost you a pretty penny up front, it’s nothing compared to what you will pay for a continuous leak that you would have otherwise missed.
Saving is key
Always stay on the lookout for savings. There are so many ways to save. Use energy efficient appliances and lightbulbs, car pool when you can, use coupons on the items you always buy, stock your deep freezer when meat goes on sale, etc. Don’t forget about the big things either. Keep interest rates on your radar for your mortgage, auto, student, and home equity loans. Refinancing may be beneficial if the circumstances are right. I could go on and on about savings but I’m going to save that for another post.
Make your deadlines
DO NOT miss a payment. I will be the first to commiserate with you over how bad it sucks to pay that hefty bill this month when you wanted to take a weekend trip. BUT, and it’s a huge but, that day trip is not worth the work and stress it will take to correct a missed payment. If you are one of the estimated 78% of American’s living paycheck to paycheck, you know how hard it is to get behind. Do everything in your power to prevent that from happening.
I hope that this has been educational for you. Building a budget takes a lot of work and can be scary but you can do this. Please feel free to ask questions if you have them or offer further suggestions! Money management is one of my main jobs so I’m always open to helping others and exploring new options.