6 Steps to Preparing a Household Budget
It’s so dirty it might even be considered a four-letter word (even though it has six letters).
It strikes fear into all those immune to accountability and responsibility.
It’s preparing a … BUDGET!
I can hear the audible gasps and sighs coming through the screen. But, have no fear. We’re going to walk you through this so you finally begin your journey to financial fitness.
Here we go.
Step 1: Figure out what your weekly expenses are and begin tracking every expense.
You need to walk before you can run. You need a budget before you can hope to squash debt or achieve financial freedom. You need to be able to run 3.1 miles before you can run 6, 13.1 or 26.2 miles.
Your “walking” from a financial sense is budgeting. And “walking” for budgeting purposes is getting all your expenses accounted for.
What it comes down to is: “You need to know what you owe.” Write that down. Tweet it. Facebook messenger it. Tell your mom. Tattoo it on your forehead. If you don’t know what’s going out every month in terms of your mortgage or rent, utilities, student loans, car payments, and, yes, even your morning latte, you might as well click out of this.
In fact, don’t read any further. Get out a pen and paper. Open up a Google or Excel spreadsheet. Whatever you use, write down all your expenses. Look up your accounts if you have to.
Go do it now. I’ll wait …
Step 2: Having the right mindset and “all hands on deck.”
You will nowhere in preparing and sticking to your budget (let alone life) if you have a poor mindset.
What’s a poor mindset? Well, do you find yourself saying any of the following?
I can’t …
I won’t …
I’m afraid that …
People might think …
People might say …
It’s not possible for me to …
Well, do you say those things or any version of them? Come on. We all do. I do, you do, the guy or girl on the street does, your parents do, and your colleagues do. They’re called limiting beliefs and they come as a result of a poor mindset.
But, look, you can change course. You can create unlimiting beliefs that push you forward instead of hold you back. What do those sound like? Well, I’m so glad you asked. Unlimiting beliefs sound more like this:
I can …
I will …
If I fail at ____, it will be a great learning opportunity.
Who cares what they think …
Who cares what he or she says …
I’m committed to accomplishing …
Now, what about your significant other? Or if you have children? Great and great.
With your significant other or spouse, you both need to be in this together. No questions asked. If he or she is hesitant, it’s crucial that you talk and work it out. If you’re both not committed and on the same page, your budgeting endeavor will fail.
Secondly, your children need to understand what your family is doing too. If they’re old enough, make your budgeting sessions a family event. Teach them about money. Help them grasp why budgeting is important. As best you can, explain to them your decision-making process and how you choose what to save and spend.
Now is a great time to instill the concept of delayed gratification. So key, especially in this day and age.
Step 3: Sit down and actually prepare the budget.
If some of you are like my wife, you are dying a little inside. No, not because of the fact that you have to make a budget. But, because you are wondering why the heck we haven’t made the budget already!
Listen up — I get it. I understand your excitement and urgency.
That said, I can’t stress enough the importance of knowing ALL your expenses first, getting into the right frame of mind, and having everyone on board the budget train.
OK, now do your budget.
The first thing I want you to consider is, if you’re a salaried employee and you’re paid biweekly, you likely receive two “extra” checks. Find out the two months you receive the third check and earmark those checks. What will you budget those checks for? Debt repayment? Savings? Emergencies? Whatever it is, make that line item in your budget.
Now, fill in everything else. What should you consider? Well, I mentioned some of them above. Have a line item for:
- Housing payment
- Transportation (car payments, train, bus, cab, Uber, etc.)
- Utilities (water, sewer, electricity, gas, trash)
- Student loan payment
- Children’s expenses (school, daycare, clothing, etc.)
Those are the main categories. You can use general categories and subcategories in your budget. At this point, it doesn’t matter. You just want to do a data dump onto a piece of paper or in a spreadsheet on your computer or tablet.
Then, compare all of your budgetary expenses to your actual expenses.
How did what you budgeted match up to what you actually spend?
This is especially useful in terms of credit card payments. Actually seeing where your money is going is incredibly eye opening. Anna and I struggled with increasing credit card payments, but it all we came to light when we finally did a budget. We found that the majority of our expenses on the credit card went to eating out. Needless to say, we made some heavy budgetary cuts. But, we will get into that fun stuff in the next step.
Step 4: Making the hard, but necessary budget cuts.
We all hear about the federal, state, and local governments making budget cuts. This program gets shut down or that initiative doesn’t make the cut. Some of those cuts cause a lot of uproar and vigorous debate. However, and I don’t want to get political here at all, but somebody decided to make a difficult — but necessary decision (at least in their eyes).
The same is true in your life. You will need to make cuts. Hard, but necessary cuts. You may not be popular in your house for quite some time — even if you live alone! Your significant other will be angry. Your kids will want the new Xbox or iGadget. You will want to treat yourself to that exciting new cruise. You deserve it, right?!?
I’m sorry. But, no. Tough love time.
You don’t deserve it and you don’t need it. Convince yourself and your family of that right now. It’s hard, but delayed gratification is a tough lesson to learn.
You need to decide what expenses are changeable and what expenses are unchangeable. What does that mean? Well, your mortgage or rent is fixed (at least for the year). Sure, you could refinance your home for a lower payment or your landlord could raise your rent. But, at least for the time being, it is a fixed and unchangeable expense. You need to live somewhere.
What about your trips to the spa? And, no, I’m not singling out the ladies here, so don’t go there. I like a massage just as much as the next guy or gal. But, I can live without it. Although chasing around a toddler and running … you feel like it’s a need.
Nope, it’s a want.
Don’t make the stupid mistake my wife and I did, either. We created a fixed, unchangeable expense by joining a spa club. We paid something like $100 or $200 per month to have a massage or 2 each month. It was fun and felt great, but it was so wasteful and extravagant. Just don’t do it. When we did our budget, that was one of the first things to go.
Anyway, I digress. So, no, spa trips are a changeable expense. Sorry. They get eliminated immediately. And, yes, I do understand! See above.
I like lists. Want a list of typical changeable and unchangeable expenses? Consider those below:
Changeable, or you can either cut and/or do with less with these each month:
- Groceries (set a weekly goal and see what your family can stick to)
- Eating out (Anna and I cut this drastically and we saw a big improvement in our ability to stick to our budget)
- Cell Phone (get a cheaper used phone or plan)
- Hair / Nails (Limit these to just needed haircuts)
- Spa trips
- Coffee runs
Unchangeable, or you must pay these each month and some you can control the amount to a degree:
- Mortgage / Rent
- Transportation (car payments (i.e. used car, don’t lease), public transit, cab fare)
- Gas (if you drive to work, it’s tough to lessen this expense)
Finally, as you are doing all this budgeting and expense cutting, you need to remember HOW you’re paid. Is it hourly or salaried? Are you paid weekly or bi-weekly? Make note of these things as you do your budget. That way, you will know what money is available and when. It helps a lot when planning on how and when to write that check.
Step 5: Make adjustments and adjust your course.
What I love about writing this blog is that it captures two key areas of a person’s life: money and health. A primary way I talk about staying healthy here is running. I love to run and I enjoy talking about running. I like helping people become a better version of themselves.
So, how are you doing with this whole budgeting thing? Do you need help? Are you losing motivation? If so, stop reading this. Email me at RunTheMoneyBlog@gmail.com. Seriously. Let’s talk.
If you’re good to go, still you can drop me a line and tell me about it. I love hearing about people’s success stories.
You might be at a point in your budget-making career that you need to make some adjustments. That’s OK. It’s like in running. You may find an obstacle ahead that you can’t get around, so you take a different path. Or, when you’re driving, you may need to take a back road to avoid the traffic on the major highway. You get the analogy.
Correct course with your budget. Create an action plan that addresses certain issues, like outstanding credit card debt or student loan debt.
Maybe you have some of those changeable expenses you can afford to get rid of. Get rid of the gym membership, the deluxe cable package, the salon trips, happy hours, coffee runs, and the like.
Step 6: Making the budget a part of everyday life.
Budgeting is not a one-off event. It needs to become your lifestyle. Don’t think of it as a negative like you’re denying yourself something. You work hard for a living. You deserve to enjoy your life.
In fact, you also deserve a life that doesn’t make you a slave to money. Living in debt with credit cards makes you a financial slave. It’s a similar mindset to an overweight person who eats whatever they want and doesn’t exercise. They become a slave to slothfulness and gluttony. This doesn’t mean you’re a bad person if you have debt or are overweight. Not by any means.
It does mean that you need to correct course and shake things up. Doing the same thing you do every day is not working. Deep down, you know I’m right. You know you need to change. Just look at your bank statement and look in the mirror. We know when we have a financial or health problem. The real issue lies in not wanting to face it. How long are you going to wait? I say it ends now.
For the purposes of this post, you need to live that budget you created. You made the effort to track your expenses and cut those changeable items from your budget. Now, make it a staple in your life.
You are now (hopefully) a person that lives on a budget. This is a positive thing. Don’t succumb to the thoughts of small-minded individuals who will tease you like you’re back in high school. Who needs that crap? Truthfully, if you have people who offer their unsolicited opinion about your newfound budget happen, be thrilled about it. If you have some critics, you’re doing something right!
Don’t listen to “them.” Pay “them” no mind. Who cares if it’s family or close friends? Who the hell cares? You’re not doing this for them and you damn sure don’t need their approval.
You’re doing this for you and for your family. Trust me, you will be glad you did and that you’re continuing to do so.
Congratulations to you for having the courage to change your life.