My Guaranteed Way to Find Money Every Month

My Guaranteed Way to Find Money Every Month

Create a budget. It's the number one thing you can do for your financial health in 2016, but it's probably not the easy win you were hoping for.

The word budget is almost like a curse word to some people. Especially if growing up it was used like: "it's not in the budget" as a response to your grocery store plea for sugar cereal. Huh? Just me? 

The thing is, a budget is the most liberating way you can possibly spend money. It gives you permission to give generously, enjoy experiences, and purchase things you want and need without the guilt or worrying if you will have enough money at the end of the month.

The biggest question, of course, is how. How do you actually create a system that works for you? There are many tools available (Mint.com, EveryDollar.com, pencil and paper, spreadsheets) and I have many smart friends who each do it differently. {Side note: Maybe I will bring them on to guest post about it?} For now, I will share with you MY METHOD.

The spreadsheet I use is the exact way I climbed my way out of $60K worth of student loan and car debt. As you can see, I have evidence back to 2013. Before that I was using credit cards and used Mint religiously since it pulled data from each account. 

The budgeting system is called a zero sum budget. That means before the month starts, I write down every expected expense and allocate my entire income to a category. The difference between the budgeted expenses and my net income is ZERO. (I start with my actual take home pay in the net income line. This is what comes home each month after things like taxes, health insurance, or 401k contributions.)

Sample numbers

Sample numbers

Sounds pretty simple right? Well it is, but it's not a math test - it's a behavior test. First, we'll tackle the math.

The order things are listed is very important. 

  1. Giving - even when I still had debt, this was at the top. It often only had $20 in it for a birthday gift or bottle of wine. It is a constant reminder that my money is most powerful when I can use it to help others. This is the most difficult one for me as my first instinct is always to save "just in case". So, in addition to a savings goal this year, I have an ambitious giving goal and will actually use that line item for it's intended purpose. No matter who you are, there is always something that comes up every month where you need to give a gift. Don't forget to put it in the budget!
  2. Saving - I personally calculate my savings goal to include two factors: 15% of income to retirement + 1/12th of my yearly savings goal. I put it at the top of my budget because it it non-negotiable. Don't steal from yourself and let this one slip.
  3. Rent/Mortgage - pretty obvious why it's up there... you have to pay it or you have to find another place to live. 
  4. Utilities - same thing here. 
  5. Debt - if you have it, it will usually be a static monthly payment and located here on the budget. We'll talk about extra debt payments a little later on. 
  6. Gas - I'm surprised how many people don't know how much they spend a month on gas. I'm willing to bet it's within the same range every month without you trying. So plan for it! If you have a special road trip or event, make sure you account for that. The gas line item is not something I personally try to reduce. I have a paid for car, so I will drive it as needed. You might feel that this is somewhere you can scale back. Maybe you can move closer to work? Car pool? 

This is where things get dicey for most people. Expenses that inevitably happen each month but seem to never make it into the budget. Or, you have a history of under-budgeting and then throwing out the budget because you keep blowing it. It might take a while to nail these down, but it's where you'll likely see the biggest positive impact.

  1. Food - personally I lump groceries and restaurants in the same bucket. I get to the monthly budget by determining what I spend each week and multiplying by the number of weeks in the month. Each week, I take out cash for that week's budget and usually go grocery shopping first. Anything leftover is for dining out. I eat most of my meals at home so this is what works for me. It's a "treat" to dine out so that's how I treat it. I can't stress enough HOW important it is to use CASH for this. If nothing else, try it. I can almost guarantee you will spend less money. 
  2. Household Supplies - this is another place where it's easy to get out of control. I call this the Target (or Amazon) line item because it's essentially anything I need for the house or daily life that isn't food. Ideally I would use cash for this also, but I can't turn the 5% off with my Target DEBIT card and you can't send cash to Amazon.
  3. Gym - this is something I always budget for because it's important to me. 
  4. Rotating Monthly - in my budget, each expenditure in this bucket gets it's own line item. It's different to everyone, but it's usually the things you forget like car insurance, oil changes, car washes, rec sports fees, dry cleaning, renters insurance, haircuts, spotify subscription, etc.
  5. Blow Money - even when I was paying off debt, I had a small budget for spending money. This is for having fun and not hating your life :) Things to include here: clothes shopping, Uber rides, flights, concerts, books, movies, etc. 
  6. Extra Debt - everything that you can possibly find at the end of the month goes to paying off more debt. If you have debt, the entire goal of your budget should be to maximize this line.

I hope you're still with me because I haven't told you the secret to making this work.

Ready?

LOOK AT YOUR BUDGET EVERY WEEK. This is NOT a static document. I tinker with numbers every.single.week. There's always an unexpected expense. That doesn't mean you throw the budget in the trash. It means you find a place for it. You will have to reduce another line item or push something to next month. Just do whatever you can to NOT touch your savings budget or your debt payment. 

In church last week the pastor implored us: whatever you do this week, do it right. It is the cumulative effect of many small things done well that’s most impactful. 

Sit down and think about your big hairy audacious financial goal for 2016. WRITE IT DOWN. Then calculate it out. What will it take you to get there on a monthly basis? Is it possible? Do you need to work more hours, get a second job, cancel your cable? I promise there is something you can do if you want it badly enough. 

I LOVE! talking about this stuff. Let me know if you want to chat!

Happy New Year! 

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6 + 5 = A Radical New Way to Make Resolutions

6 + 5 = A Radical New Way to Make Resolutions

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