Have you ever wondered how to get a clear vision of your finances so you could actually out of debt and realistically set a budget?
If you want to get out of debt and learn how to budget, it is important to have a clear vision of where you are financially before you get started. You need to ask yourself why you want to get financially healthy. Where are you going with your money and how can a budget take you there? Think of it this way: if you were a marathon runner, in order to run a race you need to have a starting line and a finish line. Budgeting is similar; it is not something you learn to do quickly and you have to plan and train to make it work.
Today we are going to work on setting up your starting line in your ‘marathon’ of finances. Once you know where you are beginning, you will have something to measure your progress against and also where your finish line is.
Start by listing out all the expenses you have each month. Of course, you will include things like your housing, gas, cable, utilities, car payments, food, and insurance bills. Place these sticky notes on the wall so you can see them clearly.
These would be things like your cable bills, home phone, iPhone, clothing expenses, etc. Be honest with yourself. Open up your past few months’ bank statements and really take a look at those other expenses so that you know where your money is going. Try not to forget expenses like subscriptions, vet vaccinations, children’s activities or camp, the money you may spend on gifts or entertaining. These sometimes tend to slip our mind because they come up occasionally. I recommend dividing these out over the course of a year so you can put money away each month and be prepared when the actual expense hits your budget.
So far, you’ve only taken expenses into account. Compare these expenses to how much income you have coming in every month. After doing this comparison, do you find you have extra money left over? If you do, but are consistently running a deficit every month, then look again at those ‘extra’ expenses weighing you down. Your budget needs to be realistic.
Date nights – Think of creative ways to have a nice dinner at home. Buy steaks and an affordable bottle of wine, and light some candles. You’ll end up spending $10-$15 instead of $50-$100 on your date night. There are lots of ways you can enjoy date night for free, too.
Phone and internet – You might want to get rid of your smartphone. I read a statistic about college kids who make under $10,000/year: 80% of them own smartphones that they pay for. This is a huge expense that could be so much less. Look for ideas on how to lower your cell phone bill. Or you could opt to get rid of your home phone and just use your cell phone. One good option is to use a pre-paid phone, or a phone with a cheap monthly plan.
Insurance – We all need health insurance and home insurance. Shop for insurance every 3 years – your rate will start creeping up a couple of dollars every few months and they expect you not to notice. There are ways you can save money on your insurance. I would recommend shopping around for insurance to get that rate down.
Clothing – We all need clothing. I have 6 kids – they grow! That should be in the budget. Think of creative ways. These might include shopping in the clearance section, planning ahead, and shopping end-of-season sales. I also love shopping on sites like ThredUP.com where you can easily consign your kids’ clothing online. Poshmark and Mecari are other favorites. Thrift stores or garage sales might also be an option for you.
Food – Use coupons, plan your meals. Learn how to coupon with my ‘How to Coupon Effectively‘ ebook.
Miscellaneous expenses – Most people fail at their budgets because they don’t give themselves any wiggle room. The reality is that things happen, things break, and we have to pay to replace them. I recommend giving yourself a little wiggle room, it can be as little as $100.00 per month that you can have set aside for these random expenses.
Place those next to your expenses. Take a look at the minimum payments of your debts and make sure that you are able to pay those minimum payments every month. If you are in a position where you are really just barely scraping by and you cannot keep up with the minimum payments, go back to the sticky notes of your expenses and see where else you can cut back.
This is the painful part of this process because you may have to give up something that you don’t want to. But the goal is to really make progress on those debts – get out of credit card debt, pay the car off, or pay off school loans. So even if you aren’t scraping by and have money left over in your budget, paying debts is where it needs to be going. It will be worth it to consider cutting back on those other expenses.
The good thing is that once you have made progress on your debts, you have the choice to add those back in. Remember – it’s not forever!
Getting a clear vision of your finances can be done in under an hour. When you are finished, you will have an understanding of your starting point. From there, you will be able to make better financial decisions. In the end, you’ll be on the right track money-wise and have the know-how to continue on that path.
To recap, here’s how you can get a clear vision of your finances quickly and easily.