When you hear the word budget, do you think freedom or prison? Many people lean on the side of prison, but as I found out, a budget is the key to financial success and freedom. For the first 28 years of my life, I never did a budget – I mean I didn’t even write a list of my bills down each month. Then, as many of you know, I found myself $200,000 in debt, a single mom making $10,000 year. In order for me to get out of that situation and move forward in my finances, many things had to change. The first thing was budgeting.
All budgets need to be written – at least until you reach the level of financial freedom where you automatically have set limits and can always stick to them. I know millionaires who still write down budget items such as donations, medical expenses, etc. – items that they need to keep in check to make sure they don’t go over what their boundaries are. And that is all a budget is – a list of your expenses and what your boundaries are in each category. Your true boundary is your income – if you spend beyond that, you will head into dangerous territory. The best way to avoid doing that is to set up a list of every dollar you are bringing in and where you want it to go including savings, retirement, fun, etc. – a zero budget. Everyone can do this – whether you have regular income or irregular income.
Regular Income – When you get paid the same thing every month, it is easy to do a budget. You know ahead of time what your take home will be so you can sit down a week or so before the beginning of the month and write out your budget. You can use pen and paper like I do, or you can use a spreadsheet or one of the many apps out there. It doesn’t matter how you do it – the important thing is that you do it. As I mentioned before, make sure you do a zero budget – this is where every dollar has a home. If something changes throughout the month, you can switch money around, but when you leave extra money floating out there, you have a tendency to forget about it and spend it on something you shouldn’t. You are in charge of your money and if you don’t tell it where to go, it will literally go and you will never see it again.
Irregular Income – It is a little more challenging to do an specific budget when you have different amounts of income coming in each month. However, it is just as important that you do one. The first step is the same – write down all of your expenses. Then rewrite them in priority order – let me help with this one – food, housing, utilities, transportation come first. Then you can worry about credit cards, debt, etc. Never pay a credit card before your rent/mortgage. When your money comes in, simply start at the top of the list and pay down the list until you run out of money. Everything else gets moved to the next check. Here is a major tip that will help you if you have irregular income: Have a cushy emergency fund. If you have one, you will be able to cover all your expenses every month no matter what the income. And when the months are good, you can rebuild the fund with the extra. This will keep you from missing payments, being late and racking up extra fees.
Many people don’t like doing budgets because they believe that doing one will make them have to say no to something. However, not doing one will make you have to say no to a lot of things in the near future. A budget is a wealth building tool. A budget is you being the boss of your money. A budget is your key to financial freedom. If you are scared to start budgeting, I understand. I was right where you are. Let me put your mind at ease – you will fail multiple times. Not because you can’t do it, but because budgets are emotional things. You will have to face your truth doing a budget. You will have to say no sometimes doing a budget. But without doing both of these things, you will never reach the financial freedom you so desperately want. Start by doing a spending journal. Learn where your money is actually going. Then use that spending journal to do your first budget. And I would also suggest continuing the spending journal in conjunction with the budget for several months or forever. It is a great tool to have in your wealth toolbox. And my last tip – add a G.O.K. (God Only Knows) category to your budget. All you need to put in it is $20-40 per month, but this will help you with those tedious expenses that pop up out of nowhere.
Budgets are not hard, but they are emotional. Just remember, with a zero budget, you only have what you have. Therefore, if something changes, the money has to come from somewhere – either another category or the future, meaning it may have to wait until next month. After a few months, you will begin to build your muscles and you will get stronger with each month – and wealthier too.
Always remember – budgets are our friend!