A little background about me. I grew up poor. My parents divorced over fights about money and I was raised by a single mom who worked 2 jobs to support us. Money was tight, we lived paycheck to paycheck, there was never enough and at times it became very stressful, even to a child. When Josh and I married, we decided one thing we didn’t want to fight about was money. However, this often meant we didn’t talk about money either. We both had good jobs and we spent pretty freely. Well as things happen, life changed. We had our first baby and I decided to start working part time. WOW, is that a shock to the system. Part of the problem was I continued shopping and spending like I had a full time income. I honestly didn’t know how to budget. This went on until baby #2 was born and we decided it was time for a change. We began to realize our jobs might not always be there and we didn’t want to be held back by our debt, a house, 2 cars, student loans, credit cards, etc. We decided it was time to set a budget and stick to it. There are many budgeting worksheets and websites out there. We chose to follow Dave Ramsey’s Total Money Makeover. It was shocking, hard and life changing. When I first sat down and starting filling out the worksheets I was overwhelmed. We realized we were spending freely, but never had money left at the end of the month for savings, extra bills, etc. Then we saw how much we spent at Target in a week or eating out and it was enough to send me into shock. So here is how we went about budgeting.
- Create a budget
Choose a budget to follow. We used Dave Ramsey, but I am sure there are other ones out there. We also used Mint.com to track our spending before starting. This is where I saw Target and fast food popping up way to much.
- Allocate funds
We were very realistic with our budget and allowed ourselves fun money, “extra”, etc. We knew if we didn’t we would be miserable. We separated out all of the cash for groceries, gas, extra, date night, personal, etc. and put them in labeled envelopes. When I go to the grocery store, I take the Grocery envelope. When the money is gone, it is gone. It doesn’t get to be borrowed from other areas. This helped keep us on track, creating menus, buying necessities instead of wants. Now in the beginning this did NOT always work, and we would borrow from other areas. But as time has gone on, we have adjusted some areas and learned how to cut back on others. Below is a picture of our file organization (bills to be paid, bills paid, tax forms) and our envelope system.
- Build an emergency fund
This is so important to have. Before the budget we would dip into our savings a lot for unnecessary spending. Then when things would come up like a home repair, car maintenance, or other unexpected expense we would put it on the credit card. And you know where that gets you! Build this up before you start paying down extra on bills.
- Start paying down bills
List bills by highest interest rate and start putting any extra money towards those bills once emergency fund is funded. Put any extra money along the way towards paying down these bills.
This is a Dave Ramsey term, but it means once you pay off a bill, add that payment amount to the next bill. (ie. You pay $100 a month towards Credit Card, once Credit Card is paid off, take that $100 and add it to the $150 you already pay towards student loans. Now you are making a $250 a month payment and paying down your debt much quicker).
These are just some of the starting points to creating a budget, but what is amazing is when you start seeing results. I remember when we finally got going and I started realizing we had so much money left at the end of the month. It was amazing. Thanks to our budget in less than 6 months we have paid off our credit card and a car. This is not because we make a lot of money or have a lot of savings, it is because we have been dedicated to the process. Don’t get me wrong, we have slipped and I have overspent at times, however, in those moments we revisit our goals and get back on the wagon.
Do you have a family budget that you stick to? Do you use a program, an excel spreadsheet, or just watch what you spend?