Budgeting Series – Part Three

JenPlans Budgeting 3

Welcome to the main event! It’s time to MAKE A BUDGET! If you are just starting, you’ll need to complete Part One and Part Two before moving on to this portion.

Gather your information
□ Categories (This comes from your 12-Month Spending History you completed)
□ Known Expenses (bills, debt payments, etc)
□ Known Income (if this is variable, you’ll use the variable income budget template linked below)
□ Way to keep track of budget (excel spreadsheet, pen and paper, etc)

Pick your format
□ If you have a FIXED (or mostly fixed) income, use THIS BUDGETING FORM.
□ If you have VARIABLE income, use the form above, AND THEN THIS.

Cross-check your categories with the ones on the budget form and add the ones you have that don’t appear on the forms.
Follow the prompts on each form and start filling in your KNOWN expenses first, then plan out what you’ll budget for the rest.

Don’t get discouraged!
It usually takes at least 2-3 rounds of this process while you figure out what numbers work
and what you need to adjust before they all balance out.
This is a learning process and even if it’s frustrating,

Sinking Funds! When filling in your sinking funds, you’ll divide out your expense by the number of months until its due if it has a timeframe (for example, if your $120 car registration is due next August, you’ll divide that category by 12 and then save $10 into that “sinking fund” each month. Come August, you’ll have all $120 saved, will withdraw it to pay the fee and will start all over again. If that registration is due in February, you’ll need to amortize that money over six months instead of twelve, so you’ll save $20 each month until February, THEN reduce to $10/month from then on out). If it DOESN’T have a timeframe (furniture replacement, car repair, etc), figure out how much you’d like to have saved based on your spending over the last 12 months and turn that into a monthly expense.
Be sure to note which categories have a little envelope designation next to it to show you which categories are recommended to be CASH categories. This will prevent over-spending. You can’t spend it if you don’t have it! You can use regular envelopes or make yourself fun fancy envelopes but you just withdraw the amount, stick it in the envelope and then carry the ones you need for that day. If you’re already using cash, GREAT! If you’re not, now’s the time to try.
Make your plan. When will you withdraw cash? When will you sit down to pay bills? Schedule your weekly reviews of all of your accounts and envelopes to see how everything’s going and to tweak where necessary.

If you think this is a bunch of bologna, TRY IT.
There’s no harm in trying something new. I challenge you to try it for one month –
it doesn’t have to be a lifetime commitment – just give it a shot for one month.
It will be a learning tool to teach you what you like, don’t like and how it affects your spending.
It is so important to learn about yourself in this process.

YOU’RE READY TO START! Happy Budgeting!

jensignature Budgeting Series – Part Two (5)

Welcome back! If you are checking in for part two in the budgeting series, read on! If you haven’t seen part one yet, start here!

Part Two is all about knowing your numbers. To properly build a complete budget, we need to know exactly where all of our money has been going. Good thing we checked shame at the door in our last part! It is NOT shameful to look at your past when you’re trying to change. It is ESSENTIAL. Take a deep breath. Most people have the hardest time with this step. I promise you – there is no hole so big you can’t get out of it. It may take some time and hard work, but ANYTHING is possible. We have to know what we’ve been doing if we want to change it. This week’s mission is getting a very precise picture of your financial situation.

There are three pieces to this puzzle: Debt, Spending, and Income

Make a list of all of your debts, smallest balance to largest balance, and interest rates.

This is the most time consuming step. A complete breakdown of the last 12 months of spending. I know it sounds overwhelming, but it took me about 2 hours altogether. You’ll have to adjust this process for the ways that you spend, but I’ll share what I did to get this picture and you can modify based on how you spend. I opened a blank excel spreadsheet (paper and pen work fine, too!) and then in my internet browser, a tab for every account I had (checking account, credit card 1, credit card 2) and then grabbed my checkbook register. I started with my least frequently used CC and went to 12 months prior, copied and pasted and then sorted out into excel by date, vendor name and amount. I added a fourth column with which credit card it was for my own reference, and then added a fifth column that I later used to categorize.

Here’s an example:

Date Vendor Amount CC Category
1/2/13 Shell $43.46 Chase Gas
1/6/13 SportsClips $22.00 Chase Health/Beauty
1/15/13 Chili’s $32.47 Chase Dining Out

I did this for every single charge for 12 months in my checking account (using my check register to supplement with check numbers) and two credit cards. It was easiest for me to alpha sort by vendor and then add a category. You’ll be able to separate by month to get your total monthly spend and also by category. You’ll know very quickly where your money went. It’s incredible and scary and empowering. Knowledge is power!

Make sure you know what is income and what is reimbursement (if applicable). When you have your income listed out for each month, you can cross-check it with your monthly expenses and see how much in the hole you’ve been going (if you have been).

Homework for Week 2 is to complete all of these steps (together with your spouse/partner, if applicable)! See you next week for Part Three! I also highly recommend finding a local Financial Peace University class through this link on Dave Ramsey’s website and enrolling.

See you next week!