Budgeting: Getting ahead on what you have
Budget — it’s a word that I’ve heard for years, but never really implemented into my own financial journey until recently.
See, expense tracking was always something I had done, and had done rather well. I kept a checkbook register faithfully for many years and could tell you at any given time to the cent how much money was in my bank account. So, I thought that I never needed to budget.
Yes, I know. I can almost hear Dave Ramsey in my head saying “PhD in D.U.M.B.”
I suppose that since I was actually tracking and keeping up with how much was going out, that I never needed to plan for how much would be allocated for expenses.
But once the credit cards were cut up, I was all in. Didn’t really have a choice. But something I figured out quickly was how in the world do I even begin budgeting when I’ve never done it before?
After listening to a few podcasts and reviewing some material on the Dave Ramsey website, I kept finding this phrase “zero-based budgeting.” What the heck was that?
The first step was to write down our household’s total income.
That would be easy for salaried employees, as you already know exactly how much will be going into your home from month to month.
However, for the hourly, commissioned, and other employees with varied incomes, it can be a bit trickier. The easiest way to determine that monthly income is to take an average of a few months back, that way you have a rough estimate of how much you expect to bring home.
Step two is listing all expenses — ALL of them. So we are talking utilities, mortgage payments, grocery/ household items, subscriptions, entertainment.
Ramsey suggests that every dollar spent should “have a name.”
Once you get to step three, it’s time to subtract all of the expenses from the income to equal out to zero.
That was the step that was tricky to me.
Honestly, this month was a fail when it came to groceries.
For our three-person household, I figured that $400 should certainly get us on household items and groceries. Well, we ended up going over almost $80, with month still left over.
But, rather than getting frustrated and throwing in the towel, we will try again. After all, Ramsey did say that we wouldn’t get it right the first time.
However, it’s a very good thing that it happened, because it forced me to go back through the last month’s expenses and figure out exactly how much we spent and where.
There’s no reason why a family of three couldn’t get by on $400 in groceries a month, there are plenty of families who have and can do it on much less.
Another Ramsey idea implemented into our finances is using a cash envelope system.
Rather than swiping the debit card for all expenses, enough is left in the checking account for bills to be drafted out and the rest is withdrawn in cash to use for our different expenses.
So far, six envelopes have been very sufficient thus far. There’s one for Grocery/Household, Gas/Auto, Miscellaneous, Savings, Debt and Car Insurance.
Years ago, when I was much more financially stable, I used a cash system and was very successful, just didn’t have it all allocated to different places.
The reason why it works is that using cash “hurts us” psychologically. Swiping a debit card really doesn’t have the impact that breaking a Benjamin does. It causes you to really think before you purchase, because once Big Ben is broken, he is no longer there.
But with a debit card, it just aids in mindless spending and we tend to buy more. Rather than getting just a drink at a gas station and paying with a few dollar bills, we might pick up a drink and a few snacks and just swipe the debit card. After all, it’s just a few dollars, right?
Once a bill is broken and spent, the cash that folds goes back into its spot, and the kind that jingles goes into a separate coin purse, which we collect over time and eventually cash out and put in our daughter’s bank account. Yay to starting a college fund!