A couple months ago Jordon started telling me about this money book he was reading. He said it fast tracks paying off debt using the snowball effect so you can begin saving for your future earlier. My ears perked up after hearing that.
We have always been pretty good about saving money and not over-spending, but there’s always room for improvement. We both have student and car loans, not a ton, but it’s still not fun to see the statement and how much we owe. Living a comfortable life in the future is something that’s important to both of us, but it seems so far out of reach when we’re putting our money towards loans.
Money is of course a personal thing and looks different for everyone. I’m just an average person with an average income, but I hope through my experiences with the Total Money Makeover and our plan to pay off all our debt (except for the house) in less than 2 years will offer inspiration and hope to those wanting to do the same.
We are in the beginning of our Total Money Makeover and the first step was creating a budget. I will walk you through my tips how to create a budget and tricks to sticking with it.
A little disclaimer: we live in the midwest where cost of living is pretty reasonable. Since we have a lofty goal to pay off all our loans very quickly in 2 years, we have a very strict budget. This is just what works for us right now.
Step 1. Calculate Expenses
The first step is to calculate expenses so you know exactly how much you’re spending each month. I do this before each month by allocating money to bills, rent, fun money, and estimations for food, gas, and other necessities I will spend that month. I add an extra $150 each month for unexpected bills such as car repairs too.
It’s key for me to “spend” my money before the month begins so I stay on budget rather than adding up expenses at the end of each month and then finding out I over-spent.
You can also do this for 12 months at the beginning of the year so you can account for things like birthday presents, vacation, Christmas, insurance, license and registration, etc. for an overview of a full year of expenses.
Step 2. Determine Income
Now that we’ve calculated expenses, add up your monthly income. This is your monthly paycheck, any rent income, tax return, side jobs, etc.
Step 3. Set Savings and Debt-Payoff Goals with Remaining Money
Next, take your monthly expenses and subtract them from your monthly income. If you’re positive, that’s good! This is the “extra” money you can put towards your savings, debt payoff, investments, travel, home projects or whatever your goals are. If you’re negative, it means you need to re-budget and cut back on spending.
Depending on your financial goals, you’d use this extra money to calculate how much you can realistically pay off debt or save each month which is what we did.
Step 4. Record Monthly Spending to Keep You on Track
In addition to step 1, setting a budget, I record my actual spending so I make sure I’m following my budgeted plan I set before each month. I use Excel to keep track of my budget and then record my actual spending in a separate column so I can stay on track and compare my budget versus actual.
You may also want to start with the envelope system. Simply take your monthly allotted “fun” money or shopping budget for example, and put the cash in an envelope. Once the money is gone for the month, you can’t shop. It’s a great visual way to see what you’ve spent and how much you have left.
I’m using this method for my monthly $200 budget for fun/shopping that is used for clothes, decor, movies, going out, etc.
Recording your monthly spending causes you to think twice about splurging, and it’s satisfying to see you’ve met a financial goal!
Setting and keeping a budget is hard work and definitely not glamours, but the results are rewarding. Before we started this plan I had an idea of what I was spending each month, but I didn’t have any goals I was aiming for so if I saw a cute pillow at Target I’d probably buy it. There was nothing to hold me accountable.
Step 1 and 4 have completely turned my mindset around. Now that I have a set budget every month and record spending, I think twice about buying anything and I’m motivated to reach my goal.
Because I love decorating and it’s obviously a big part of this blog, I do plan to continue home projects. As usual, they will be very budget-friendly so my total money makeover doesn’t take a big hit.
I plan on creating a separate post that focuses on setting a budget for a single home project as well, but since budgeting is now a big part of our life as we work to become debt-free, I wanted to share this as a separate post.
I would love if you shared your tips and tricks for budgeting that work for you so we can all learn and hopefully find something that works for each of us!
If you are interested in following along with our Total Money Makeover and want to see more progress posts, just let me know if the comments.
Whew. That was an overwhelming amount of information to take in! I promise, all the hard work and brain power will be worth it in the end when you’re on track for your future.