1. Figure Out Why You Want to Be Financially Free
Before you start your budgeting process, or start creating a budget, you need to know exactly what you're budgeting for and why. It's simple, write down the answers to only two questions:
Why are we budgeting?
What is our purpose?
- I want to buy a new house
- I want to buy a new car
- I want to take my family on regular vacations
- I want to get rid of my student loans
- I don't want to worry about money
You need to know what you are budgeting for: a car; and why so I have safe and reliable vehicle.
Now, really think about why you are starting to live on or set your budget:
Yes, you want to save money and and get rid of debt, but what end results are exciting to you? Could you …
Take dream vacations?
Upgrade your car?
Change into a career you are passionate about?
Give to people or causes you believe in?
Help out a friend, or support your parents?
Provide for your children without worry?
Write down “why” you are budgeting, keep it and revisit, as you develop and adjust your budget each month.
Determine the difference between a want and a need. Make sure you really understand the difference. Then make sure that you still include spending money while you are on a budget. This is so you don't feel constrained and
3. Choose Your Budgeting Tools
Your budgeting tools can be any or all of the following:
- Pencil and Paper
Even in 2018, you still really don't need fancy apps, websites or even spreadsheets to budget. I know, I know even nowadays, a good traditional pencil and paper will work too and get the job done. Simply put the following onto a piece of paper:
What Am I Budgeting For?
Why Am I Budgeting For This?
Home (Rent or Mortgage): $ Amount
Electricity/Gas: $ Amount
Water: $ Amount
Garbage: $ Amount
Renters/Home Owners Insurance: $ Amount
Misc. Home (Repairs/Improvements)
Pool Service: (If Applicable) $ Amount
Gardening: (If Applicable) $ Amount
Housekeeper: (If Applicable) $ Amount
Car Payment: $ Amount
Gas: $ Amount
Car Insurance: $ Amount
Student Loans: $ Amount
Health Insurance: $ Amount
Food: $ Amount
Cable: $ Amount
Internet: $ Amount
Cell Phone: $ Amount
Emergency: $ Amount
Credit Cards: $ Amount
Medical Insurance: (If Applicable) $ Amount
Childcare: (If Applicable) $ Amount
Dining Out: $ Amount
Entertainment: $ Amount
Misc: $ Amount
You can easily use an Excel document as well if you prefer.
I do highly recommend checking out Mint.com It is FREE, it has a very intuitive app and it syncs up with your accounts to track your spending. I use it and love it. If you prefer using apps or websites, this is a great option
4. Review Your Budget Monthly
On The 1st of the Month Look At The Following:
Last Month’s Spending
Where are we over budget?
Where are we under budget?
What areas do we need to adjust for next month?
Current Month’s Plan
What events do we have (birthdays, weddings, celebrations, etc)?
What areas do we need to adjust this month (heating or a/c bill increases)
What do we want to do when the credit cards are paid off?
What trips do we want to go on?
When are we taking the kids to Disney for the first time?
5. Earn More Money and Celebrate Milestones
Use websites and apps like Ebates.com and Ibotta to earn cash back for everyday purchases
If you are saving money and creating an emergency fund as your goal, celebrate that milestone when you hit that goal. Whether that means buying some champagne and celebrating with a loved one, or going out to dinner, do it.
It can be very motivating to reward yourself when you achieve your personal finance dreams. a lot more and keep hitting those goals! You will keep getting one step closer to complete financial freedom!