Mastering the monthly budget is the easiest thing to do in concept and yet one of the most difficult to do in application. We are all aware of the concept of the budget but it is very easy to get frustrated when trying to put one together and stay on it. So here are a few guidelines that have helped me out through the years that have kept me from ripping my hair out.
Give yourself grace and time
The first few months you try it the budget is not going to work and it will be at least three until you get used to it, six for it to start working and a year for you to master it. Giving myself the freedom to make mistakes and mid-month adjustments because I budgeted too high/low for certain items encouraged me to keep going and not fall off the wagon. Developing and living on a budget takes effort, intention and most importantly time. Living on a budget is a wonderful habit to form, but again it takes time and lots of practice as I recommend you make a new budget for every month, forever. To this day my wife and I live on a monthly budget that is redone every month, but it has taken 3 years to be where we are today, being able to draft and finish the monthly budget in less than 15 minutes.
Plan every dollar before the start of every month
I know the dates when I get paid and having a pre-planned list of what to do with every dollar earned helps me tell my money where to go rather than wonder where it went. The best tool I can advise for this is using a formula table on an Excel spreadsheet, full of line items that subtract from your net pay. With a formula table you have wiggle room to play with and shift your expenses to see where you can focus extra money. Whether you are paying off debt, saving for your 6 month emergency fund or planning a big vacation, giving ever dollar on name a purpose before you earn it will help you move along in your goals.
Yes you can pay off your student loans or mortgage payments faster if you only had to spend $50 a month on groceries and entertainment. But being realistic helped me find grace in those early months. My recommendation early on when you are learning to live on a budget, is to get the best ball park figure you can come up with based on previous months, and if need be – err on the side of budgeting too much on line items that might give you fits (groceries, clothing, entertainment, etc.). Once you are about 6 months into living on a budget you will have a better gauge at what you realistically spend month to month on living expenses and you will be able to assess where and how to cut expenses. For us this was especially true in budgeting for groceries. We started out with a ball park figure of $500 a month, and over time we cut our grocery monthly budget down to $350 by choosing to become flexatarians. If we had tried to heavily cut meat from our diet in month 2 of learning to budget we surely would have killed one another.
Renter’s insurance, term life insurance premiums, Christmas and the need for gifts for events (weddings, funerals, newborns, graduates) will happen every year. What you can control is minimizing the “gotcha” moments by putting each of these line items on your monthly budget. Our term life insurance premium is due annually and we use a sinking fund to cover the cost. We know what the annual premium is and when it is due, we divide by 12 and viola, we have a budget line item for every month so when the premium is due we simply pay it with the money saved for that specific purpose. The same goes for all of the aforementioned things that occur throughout our lives. Month to month this also helped me realize my priorities. When I was climbing out of debt Christmas cards were my “go to” gifts to family at Christmas time, and now that I am on the other side of the debt mountain, I can raise my Christmas giving up a tad more than when I started J.
Know your weaknesses
This last bit kind of gets to the heart of the budget: being honest with yourself. Before I budgeted I overspent regularly on entertainment, groceries and clothes. To combat this, the line items that had caused me the most trouble I shifted to the envelope system. With entertainment as an example we budget $300 a month for outings. $300 is all that goes in the envelope marked entertainment. When the money in that envelope runs out, I don’t go out anymore until the new month begins. Embracing and learning from my weaknesses has been more than helpful in wealth building.
Budget planning is about common sense, planning for the expected (your emergency fund handles the unexpected) and taking actionable steps to living below your means.