Today we have an exciting guest post by Kristen Rummel. Enjoy!
Hello all. I’m so happy to be here with you today. I am Kristen Rummel, creator of the blog DomesticateYourDollars.com. I’m excited to share with you my tips on the easiest and fastest way to start a budget and organize your personal finances. Don’t worry if you’re stressed out or frustrated by finances. The tips below are easy to follow and intended just for you.
Be sure to go all the way to the bottom of the article. We have great resources just for you all. On my site I have a page set up with free templates for the items I discuss below, and you guys have exclusive first access!
Track Your Spending
Before we dive straight into the budget, first we need to review our spending. You might be wondering, “Why am I looking at what I’ve already spent if I want to create a budget for future spending?” That’s a VERY good question.
Believe it or not, creating your Spending Log should be the FIRST thing you do before creating your budget, and here’s why: in your budget you’ll write down how much you think you’ll spend on specific purchases throughout the next month. But how do you know a solid estimate if you don’t know how much you already spend in any given area? Most of us have heard the old adage, “You must know where you’ve been to know where you’re going.” That’s definitely true when it comes to creating a REALISTIC budget.
To track your spending you’ll need to create a “Spending Log.” This can be as simple as writing it down in a notepad, but for the sake of being quick and easy I suggest using a spreadsheet. These days most banks allow you to download a copy of previous statements and current transactions. You should have the option to download it as an Excel file or as a CSV (comma separated values) which can be used in an Excel spreadsheet.
After you review your previous month’s statement, take note of your monthly bills and also the reoccurring expenses that can be categorized. Examples of these “categories” are eating out, entertainment, household, etc. Write down these categories and the total amount spent in each one. You’ll use this when you create your budget.
Budgeting and Planning
Now, lets put together your budget. Thanks to the work you did creating and reviewing your spending log, this part will actually be pretty easy!
Having a written budget increases your chances of long-term financial happiness and success. It forces your brain to make concise choices, and having these solid decisions will help you along the journey. The combination of creating goals and then planning how to reach your goals is empowering. Writing this all out on paper (or Excel) shows you it is possible to be in charge of your money and is your motivation to keep going if you begin to veer off course.
To build a solid, useful budget you’ll need the following:
Average of other recurring expenses from your Spending Log
Once you have this ready, write down EVERYTHING you expect to pay in the next month. You can use either good ol’ pencil and paper or the spreadsheets I’m providing. Try to be as realistic as possible. For example, if spending in one area has steadily increased in the last few months plan to spend a little more next month than you did last month.
If you discover you won’t have enough income to cover everything, start coming up with ideas. Can you move one or more expenses to the next month? Is there a friend with skills that can help in exchange for you doing something for them?
What if there’s extra money after all expenses are paid? Now you can address #5. For future goals and/or wishes, take some time to think about what you want your future to look like. What goals do you have that will cost money? Do you want to go back to school? Or will you need a new car? Also think about anything you want to do, like a vacation or a trip to visit an old friend. Making decisions now will enable you to plan for these future expenses and find room for them in your budget.
This section is usually not very fun for us. We don’t like looking at all of the money we owe to someone else. As much of a mood-kill as it might be it is important to write everything down and take an honest look at how much debt we have. Once you have a view of your whole debt “picture” you can make plans on how YOU want to address it.
Use a simple table to list all of your debt. I like to include these categories in my list:
Name of company
Type of debt
Due date for payments (I list everything out in order of due date)
Total current balance
Total credit limit for revolving accounts (credit cards) or beginning balance (for auto loans, etc.)
Monthly minimum payment amount
Some questions to ask yourself once you see all of your debt written down: Do you want to pay extra towards debt to reduce your total amount? Do you want to focus on paying off debt as fast as possible? Or do you want continue as usual with what you’ve been doing? The decision is completely up to you.
If you want to make any changes to the way you’ve been addressing your debt you can now plan for it in your budget.
Tracking Savings and Retirement
Savings and retirement tend to be put on the back burner by most, but if you want a true overview of your financial health you’ll need to track these. You don’t have to spend too much time doing so. This part is easier and faster than the spending log and the budget.
Your savings tracker will be used in conjunction with your budget. If you have extra money in the budget that you want to either put in a general savings account or use for a specific future purpose you will keep up with your progress in the savings tracker.
If you have multiple savings goals, write each one down and the amount of your savings you want to apply to this goal. Just make sure the total of all of your goals equals the total amount in your savings account.
You can also use your savings tracker to keep yourself accountable. Review the budget for the previous month and compare what you planned to save versus what was actually deposited into savings. You can use this pattern to create a realistic timeframe for when you’ll reach your savings goals. For example, if you thought it would take you 2 months to save $200 but it actually took 3 months, and you have a goal of saving a total of $400, a realistic prediction for reaching your goal should be 6 months instead of the original 4 months.
Your retirement tracker is very important but is quite often neglected. Your retirement accounts are how you plan to survive in the future. You don’t need anything fancy to track your retirement. All you really need is a simple spreadsheet that shows your different accounts, which company they’re with, how much is contributed, whether there was a gain or a loss, and the total balance of the account.
You can find free tools online to get an idea of what your target retirement lifestyle looks like and how much you’ll need at retirement to reach this lifestyle. Compare this information to what’s currently in your retirement accounts to determine what you should be putting into retirement each month in order to reach your goal.
Thank you all for allowing me to be here with you today. I hope this information has been helpful, maybe even caused a few lightbulbs to turn on If you would like free templates for the documents I’ve discussed you can visit my site on this exclusive page set up just for you guys!
By Kristen Rummel helps non-finance people see their finances in a simple, user-friendly way versus the common perspective of stress and frustration. Check out her free templates and easy tips at Domesticate Your Dollars. The free resources will help you on your journey to understanding your finances and feeling in charge again