I don’t plan on building a bridge; I never have. Maybe there was one kid in my high school algebra class that did, I don’t know. But I’m not sure why the school was so determined to help to create future bridge builders of America instead of graduating financially confident citizens who could create a budget and understand the dangers of debt.
I left school confident about facing the world and all the polynomials and parabolas that life could throw at me! Surprisingly, I never did come across those parabolas in the real world. I was disappointed. Instead, I was slapped in the face by credit card bills and debt collectors from every corner.
The truth is, budgeting doesn’t have to be difficult! If you managed to pull a C, or even convinced your teacher to bring your D up to a C with your best “sad puppy dog” face, while trying to calculate polynomials, then you can manage to plan out and complete a budget. For me, the importance of budgeting didn’t click until I found myself standing in the unemployment line after the only company I had ever worked for suddenly closed.
When I tell people that creating a budget gave me financial freedom, people are usually in shock. People have this perception that you if you have a budget you can’t have a “fun” life, but it’s exactly the opposite. Creating a budget gives you permission to spend. You no longer watch your money disappear without wondering where it went! Yes, creating a budget does take time, especially in the beginning, but it is so worth it!
The best way to start your budget is to understand how you’ve been spending your money, and where it is going. So, the first thing I did was pull my bank statements for the past 3 months and analyze my spending by organizing each transaction into various categories, such as food, clothes, entertainment, etc. Now, if you need a wake-up call, this is it… Wow! What an eye-opening experience! I knew I had indulged myself occasionally, but it wasn’t that $5 latte that put me over the edge every month. It was all the things I didn’t think of right away: overspending on groceries and eating out way too much. I admit after a long day of work I really dread the dinner routine. After getting a better picture of my spending habits, I decided that I was going to cut the grocery and eating out costs.
I started out my budget by listing all of my bills and the due dates for each one in a simple notebook. After all the bills were accounted for, I began by listing other categories that we needed, such as food, gas, and other necessities. Below are my categories that I used:
You can use a weekly or monthly budget. I found that I preferred monthly. I do give myself a small monthly allowance each month. It helped to keep me motivated, and unlike before, I can now feel guilt-free when I spend. Your method for constructing your budget is up to you! Some people still use pen and paper. Some use Microsoft Excel or one of the many budget apps out there right now. Whichever method you use is fine.
Your first budget will be an estimation of what you think you can get by with spending in each category. Your budget is not going to be perfect in the beginning and each month you will find yourself tweaking it. Don’t get caught up with it not being exactly right. It’s a learning experience, and those first couple of months you may have a shortage or deficit, but it will allow you to see where it’s going. It’s really about accountability in these first few months and creating a habit. It may take 3-6 months to get it where you want it to be.
Analyzing your previous spending and writing out a simple first month’s budget is the first step in the journey to finding financial freedom!