Hi Folks!
If you're like me, you loath sitting down to pay your bills and you hate balancing the checkbook because of watching all of that money fly out of your pocket. It is easily panic inducing to look at all your bills and expenses. To help curb some of that panic, a little planning is just what is in order.
Budgets are not some iron clad rule that you must follow or else financial doom will fall on your head. For some reason, the idea that a budget means you can't have a little fun or go out to eat regularly has become pretty well entrenched in how my generation (at least) views the world. (Yes, I confess, I'm part of that group known as the 'Millennials'.) A budget is a flexible tool that works really well to help you plan how you spend your money. It puts all those fussy numbers down on paper so that you don't have to juggle it all in your head.
You've decided to use a budget but you have no idea where to start? First off, congratulations on taking this step! It's a big one, though none of those financial self help books tell you that. Before you bust out the calculator and paper, get all of your information together. Organize it so that it is easy to reference what you are working with. I like to sort my current bills in the following fashion:
For this next part, I like to use colored pencils or highlighters. We are going to go through our statements and mark alike expenditures. This helps us to identify where we spend our money when we use our debit cards, checks, and pull money out of the bank. We also can get a handle on how much we pay out in fees. After we have made our statements pretty with all those colors, we want to bust out the calculator and a sheet of paper. Total up the different expenses and then calculate the three month average. Note each average by category.
This list is your starting expenses list. Add to this your list of current bills. Just to make sure that you are not burying yourself with your expenses, compare your income against your expenses. If your income is higher, then you are sitting pretty. If your expenses are higher, this is where a little bit of belt tightening comes into play. Go through your categories and identify what non-essential. Determine how much you can reduce spending in those areas and do what you can, on paper, to at least have your income and expenses equal.
Now, I want you to note here that I haven't said anything yet about savings, past due bills, or debt. That's because your first concern when setting up a budget is to make sure that the current month is balanced. One quick note, I try to make sure that at the minimum, I keep at least $100 in the bank account at all times. This makes sure that you don't have extra bank fees to deal with on top of everything else.
Next, you start on the past due bills. If you have the good fortune of having no past due bills, congratulations! You are a step ahead! If you do have past due bills, you want to organize them from the most urgent to the least. Determine which bill is the highest priority and look to see if you have any income left after your comparison against expenses. Let's say that you have some income left. Is it enough to pay off the balance due? Is it enough to pay off the minimum amount to bring the balance current?
If the answer to either of these is yes, plan to write a check for that amount. If the answer is no, figure out how much you can afford to send the company. Make a note to call them and make arrangements to pay off the past due balance by payments of this amount. You would be surprised how willing companies are to work with you when you attempt to even pay a small amount on that past due balance.
Now, let's say you are in the position that you can afford the minimum balance on multiple past due bills or pay off the most urgent one first. It could be a hard decision to make. In this situation, make the payment on the multiple bills unless the urgent one is a crisis. If you are in a position where you have a a bill that is in crisis, such as your power is about to get turned off, pay that off. You can handle the others the next month.
As you sit down with all of this and take it on, I want you to remember three things.
![]()
If you're like me, you loath sitting down to pay your bills and you hate balancing the checkbook because of watching all of that money fly out of your pocket. It is easily panic inducing to look at all your bills and expenses. To help curb some of that panic, a little planning is just what is in order.
Budgets are not some iron clad rule that you must follow or else financial doom will fall on your head. For some reason, the idea that a budget means you can't have a little fun or go out to eat regularly has become pretty well entrenched in how my generation (at least) views the world. (Yes, I confess, I'm part of that group known as the 'Millennials'.) A budget is a flexible tool that works really well to help you plan how you spend your money. It puts all those fussy numbers down on paper so that you don't have to juggle it all in your head.
You've decided to use a budget but you have no idea where to start? First off, congratulations on taking this step! It's a big one, though none of those financial self help books tell you that. Before you bust out the calculator and paper, get all of your information together. Organize it so that it is easy to reference what you are working with. I like to sort my current bills in the following fashion:
- Bank statements - For your first budget, use your last three statements here. You want to get a good look on what you spend on average for things like gasoline for the car and groceries.
- Income - This is where your pay stubs go along with any notes about regular sources of income that may or may not be taxable. (Dealing with income that is taxable and that you need to handle yourself is a whole different ball of wax. We'll talk about that another time!)
- Current bills - All of the bills that you have on hand that are due this month should go in this pile. Also, note any regular expenses that you know you have that may not have a statement to go with it.
- Past due bills - We all have past due bills that pop up from time to time. You want to get them all together in one spot. When we put together our budget, we want to start working on getting rid of the debt associated with these. All those fees add up pretty quick. I'll talk about this in a bit more detail next week.
For this next part, I like to use colored pencils or highlighters. We are going to go through our statements and mark alike expenditures. This helps us to identify where we spend our money when we use our debit cards, checks, and pull money out of the bank. We also can get a handle on how much we pay out in fees. After we have made our statements pretty with all those colors, we want to bust out the calculator and a sheet of paper. Total up the different expenses and then calculate the three month average. Note each average by category.
This list is your starting expenses list. Add to this your list of current bills. Just to make sure that you are not burying yourself with your expenses, compare your income against your expenses. If your income is higher, then you are sitting pretty. If your expenses are higher, this is where a little bit of belt tightening comes into play. Go through your categories and identify what non-essential. Determine how much you can reduce spending in those areas and do what you can, on paper, to at least have your income and expenses equal.
Now, I want you to note here that I haven't said anything yet about savings, past due bills, or debt. That's because your first concern when setting up a budget is to make sure that the current month is balanced. One quick note, I try to make sure that at the minimum, I keep at least $100 in the bank account at all times. This makes sure that you don't have extra bank fees to deal with on top of everything else.
Next, you start on the past due bills. If you have the good fortune of having no past due bills, congratulations! You are a step ahead! If you do have past due bills, you want to organize them from the most urgent to the least. Determine which bill is the highest priority and look to see if you have any income left after your comparison against expenses. Let's say that you have some income left. Is it enough to pay off the balance due? Is it enough to pay off the minimum amount to bring the balance current?
If the answer to either of these is yes, plan to write a check for that amount. If the answer is no, figure out how much you can afford to send the company. Make a note to call them and make arrangements to pay off the past due balance by payments of this amount. You would be surprised how willing companies are to work with you when you attempt to even pay a small amount on that past due balance.
Now, let's say you are in the position that you can afford the minimum balance on multiple past due bills or pay off the most urgent one first. It could be a hard decision to make. In this situation, make the payment on the multiple bills unless the urgent one is a crisis. If you are in a position where you have a a bill that is in crisis, such as your power is about to get turned off, pay that off. You can handle the others the next month.
As you sit down with all of this and take it on, I want you to remember three things.
- This is a big step towards financial freedom! Be proud of yourself for taking it. I am proud of you!
- The financial situation you are dealing with did not happen over night. Don't expect yourself to resolve it in one month.
- Don't beat yourself up if you make a few spending mistakes. You are building a new habit. It takes 27 days to establish a new habit. Give yourself a little patience and lots of love.