Investing, stocks, retirement, debt – money is a key factor in our success. But how do you set yourself up for success? Budgeting.
What is a budget? According to Dave Ramsey, it’s “telling your money where to go instead of wondering where it went.” Our family couldn’t agree with this more. Realistically, we break down our months into how much we’re projected to make and subtract how much our bills are projected to be. Income – expenses = $0, as Dave would say.
Why is budgeting important?
Budgeting is important because it’s you practicing control over your money. How many hours a week do you work? How many times do you go out to eat per week? If you work 40 hours a week but you’re eating out for lunch every day, you’re likely spending $50 to $75 a week on food! That’s a day’s wages for some people! Even lowballing that figure, you’re spending $200 a month on eating out. Did you know that investing just $100 a month from the time you’re 25 to 65 will turn you in to a millionaire? But you want to spend it on Chipotle?! I don’t think so, friend.
Budgeting is important because it gives you the freedom to do what you want to do. Pay your necessities and bills first, debt second and then your pleasure activities third. When you’re debt free, you can focus on building yourself a nest egg that will give you financial security should something like your car engine go out. Your heating and air unit finally dies. A relative suddenly passes away and you need to book the next flight – and so on and so on.
Who’s this Dave Ramsey guy and why are his principles so important?
Dave Ramsey has been an influencer in the financial sphere before being an influencer was a thing. Check out his story to find out more about how he became a millionaire before he was 30, became bankrupt, and rose to millionaire status again.
My husband and I are not only intrigued with his story but we think his financial advice makes more sense than any of the other voices in the financial sphere. The first three steps in his financial advice include build an emergency fund of $1,000, pay off all your debt, save 3 to 6 months worth of expenses. His theory behind this method is that not having any debt frees up your income so you can have control over it instead of you being slave to debt. A vehicle loan, credit card payment or other – who really owns your money?
When you combine that power – and I do mean power – with having a nest egg to cover the emergencies we talked about a bit ago, you have an overwhelming sense of security and you’re able to truly begin enjoying life. Want to plan a vacation? You can not only do that, but you can pay for it with CASH. Who can do that today?!
How do I get started budgeting?
Like I mentioned earlier, estimate how much you’re going to make in the month ahead and list it at the top of a fresh sheet of paper. Next, estimate how much your expenses are. Don’t miss anything – eating out, clothes, babysitting fees, debt, game nights, you name it, it needs to go on the paper. Finally, subtract your estimated expenses from your estimated income.
Now the fun part begins. If your home were a business, are you operating in the black (making a profit) or are you operating in the red (you’re in debt). If you’re operating in the black and you have debt but you’re only making minimum payments, that’s where you can put your extra funds. Why? I’m so glad you asked.
When I bought my first car, I overpaid for it. My 1990 blue Buick Riviera was the thing I was most proud of. Little did I know the $2,000 I again, overpaid, for it would be the first in a string of repairs. At one point, I was putting $400 a month into my car! My air conditioning, radio and horn didn’t work, largely I think due to wiring issues. When my blinkers stopped working (and I changed every single bulb to make sure it wasn’t a bulb issue) I knew I needed something else. So I traded Buie in for $700 and put $1,000 down on my now car.
Between that $1,700 I didn’t even touch my financing costs. If I’m remembering correctly, it cost me more than $2,000 in financing. the cost of my now car was $10,000. And because of my 7.5 percent interest rate, I paid another $3,400 in interest! When my husband and I got married, found Dave Ramsey and realized these figures, we knew my car payment needed to go.
Kick your payments to the curb.
Your payments need to go, too. Why pay 7.5 percent in interest to a financial institution for 6 years when you could pocket that money? Better yet, invest that money! Remember how easy it is to become a millionaire? $100 a month!
Set up a dream meeting.
If you’re single, think about where you want to be in five and ten years. If you’re married, sit down with your spouse and talk about what you want your life to look like. Where do you want to be when you’re retired?
Find your WHY.
My why is simply to live a life where I’m free from the stress that often surrounds money. I grew up in a household where money was a conversation that ended in yelling. I’m not sure my parents knew how to budget, and it was almost monthly we struggled because of it. We were the classic case of having too much month at the end of our money.
So I decided to do something about it. My husband and I built our marriage on proper communication. We have the mutual understanding this is OUR money. Every month, we make a budget and stick to it. If we have to rearrange something, we rearrange together.
For the first time in my life, I can fill up my gas tank without having to gamble with the gas pump, praying it stops on $20 exactly. For the first time in my life, I’m not having panic attacks when I go to the grocery store because I don’t know whether or not I’ll be able to buy my groceries. A budget, sticking to it, and the partnership and accountability my husband and I have have laid the foundation for our financial success. We can only go up from here.
Know where you’re money is going – use a budget.
When I first started budgeting, I found a tip that said print off your last three month’s worth of bank statements. Grab a pack of multicolored highlighters and assign each category a color. Food is blue. Home/monthly expenses are pink. Etc. etc. Go through each line item in your bank statement and assign each purchase a category. When you’re finished, you can literally see (what color) where you’re money is going.
Take this information about yourself and apply it to your future budgeting. Ask yourself the following questions:
- Where is my money going?
- Where do I want to go?
- Do I need to cut something completely out of my life?
- Where do I need to cut back?
- What MUST I cut?
- Is there a category I need to prioritize?
Make a change – TODAY.
Tell your money where to go. Sounds simple enough, right?
Don’t think of where you want to be as your first step. Think of your first step as your dream meeting. Second step is printing out your bank statements and figuring out where your money went. Third step is making a budget. Your fourth step is sticking to that budget – and so an and so forth.
Making a change today sounds scary. And it is! But determining that you’re going to take control of your finances is going to be one of the best decisions you’ve ever made. I promise. And I’ll be here to cheer you on, every step of the way. Be sure to find me on Facebook and Instagram and let me know how your financial goals progress is going!