How do I create a budget?
Here's an insightful question: Do you tell your money where to go, or do you wonder where it went?
Inspired by a recent conversation with a dear friend of mine, I thought I'd share my thoughts on “normal,” money, and a budget.
My wife and looked at each other a few years ago and decided that we made too much money to be living paycheck to paycheck (which is normal). We made some serious decisions (I unloaded my prized 2003 Nissan Murano (and its $800/mo total expense!)) to accomplish our goals.
First, further insight on normal:
- A car payment (or two averaging $400/mo each)
- $10,000 in credit card debt
- $60,000 in student loans
- An annual household income of $48,000
- Living paycheck to paycheck.
- No budget what-so-ever.
I must be missing something, but when I see “normal” it looks frightening, and completely overwhelming.
Here's a bit of wisdom I wish I'd received in my twenties: budgeting isn't about scrimping/conserving and the concept of scarcity. It's quite the opposite really. A good budget of the next two weeks – everything coming in, and everything going out, will help you master your personal finances. It'll also give you the necessary view – that of abundance.
The bi-weekly budget is simple: one column with money coming in, and another with money going out. Total to two, and if you have a surplus, apply that toward your smallest debt. If you don't have a surplus, clearly the budget needs work. It's ok, it's this insight that you need.
One of the common mistakes we make when budgeting is trying to plan for the perfect month. When was the last time you had a normal month? Do you really spend $75 on auto maintenance every month? You won't spend $100 on clothing every month, but you may in the next two weeks. Likewise, rent or your mortgage payment happen at the end of the month (I pay on the last day of the month, before it's due), so you don't need to account for it at the beginning.
Try it, it's very, very simple and provides an amazing amount of insight into your personal finances.
If you have questions, I'll be happy to help.
