If you know me, you know I’m in love with budgeting. In 5th grade, I started my first account ledger not knowing what it was and I’ll continue making them forever just because this is the budget that never ends. But I’ll spare you the subsequent 4,582 verses.
When I was 10, I was budgeting off of my $2.50/hour babysitting income. You don’t have to hit a magical amount of income to stop misplacing your funds and start benefiting from tracking your money. Even if you think you only have enough money to buy the essentials of life, start tracking that money. When I didn’t know how much is coming in and out of my checking account, I tended to fall into one of two dangerous extremes.
- Never spending money because you’re worried you don’t have enough. This was me for most of college.
- Spending too much money on things you don’t really need or want 5 minutes after you buy them and then not having money for the things that add value to your life. Hello, impulse buys.
The solution? You guessed it–start budgeting. I found an incredible amount of freedom and peace from knowing where my money is going. It may mean limiting how many times you go out or saying no to the dress today but it means getting to buy a nicer dress in three months or being able to take care of the ones you love (and yourself) in retirement.
Working in a foreign currency with a Russian teacher’s salary has given us an added budgeting challenge. My QuickBooks ledgers aren’t as effective here as we balance special international checking accounts with our rubles and kopecks.
We needed to start fresh with a new budget. If you’re just getting started budgeting, here’s what worked for us:
- Find your net monthly income. Take out the taxes and anything else taken out of your salary (social security, insurance, 401(K), alimony, etc..) The easiest way to find this would be to look at your last two pay-stubs for the “Net” number and add those two numbers together.
- Multiply the number from #1 by 10%. If you want to tithe and/or save 10% of your salary each month for retirement, write down this number. Subtract these numbers from #1.
- List known recurring expenses and saving goals. These are bills that are the same every month, like rent, mobile phone, internet, etc… Also include savings goals, like car maintenance/replacement, large vacations, or a down payment.
- Subtract the sum of #3 from #2. This is your monthly disposable income.
- Divide your monthly disposable income across the categories that make the most sense for you. For us, these categories are:
- Fun Money (Together & Individual)
- Household goods
- At the end of each month, tally up your expenses in each category and compare it to your estimates from #5. Make a new budget for the next month.
- If you’re under budget in some categories, reduce your estimate for that category and move the money to a different spending or savings category.
- If you’re over budget in some categories, see if you can move money from an under budget category. If you’re over budget in most categories, reduce your spending and tally up expenses each week for the next month to stay on top of your spending.
You may not spend all or anything from some categories (like Clothing or Vacation). We choose to “roll-over” those categories so that they accumulate over time. Think of them as mini-savings account and add what’s left over for next month’s budget!
To track our expenses here in Russia, Luke and I made an old fashioned expense sheet on lined paper with vertical columns separating the categories and a row for each day in the month. If apps and Excel sheets aren’t your thing, this is a great way to start tracking your cash flow. For my smartphone savvy friends, I’d recommend YNAB (You Need a Budget) and for those with more intense budgeting and home business needs, Quicken is fantastic.
After a few months of adjusting and reworking your budget, you’ll be able to maintain the same budget and stick to your spending and saving estimates! It may take a while to see the positive results, but keep at it. Consistently saving, even in small amounts, really does add up!
This was the last in a series of 5 “Misplaced” blog posts. If you missed any, you can find them all under the “Misplaced” category. Thanks for joining me as I try to put my kindness, attention, stuff, imagination, and money in their proper places.