Budget. There, I said it. The "B" word. Possibly the least sexy word in history.
Truth of the matter is, you can't become a millionaire if you spend all of your money. Doesn't matter what you make.
How about we call it "Income Allocation Reporting"? Or "Household Expense Reporting"?
Whatever you call it, you can’t really get started with getting rich and future money management until you know what your current money is doing. Where is it all going? And, why is it going there?
That is where my family started. We were making this great big income, but we didn't know where the heck it was going. How were we still living paycheck to paycheck?
How to Start Saving Money
Budgeting is the first step. Just track what’s coming in and what’s going out.
Now, there's a difference between "I'm on a budget" and "I have a budget for that." The former implies you're cutting spending and getting frugal. The latter simply implies you're in control of your money and know you can afford it.
Guess what? Both require a budget.
How to Budget
There are a few tools available out there: The Every Dollar App by Dave Ramsey, You Need a Budget (YNAB), Mint, and many more I’m sure. Many people have success with the apps. We tried the apps but we ended up coming back to just a plain old spreadsheet.
This is because the automation of the apps made it a little too easy (for my husband) to tune out. We(I) liked the spreadsheet because it made us sit down and analyze every line item together.
Here is an example budget.
An Example Budget on Excel
Initially, we aimed to just observe where our money was going for a month.
“Hold up. $200 a month at Starbucks!”
Well the goal was to observe, but dang, now I knew I spent $200 at Starbucks in one month. That had to change.
“Wait $1000 on Amazon! What is going on?!”
And just like that, even without having the goal of cutting back at this stage, we started to optimize.
How NOT to Get Divorced Budgeting
I’m going to stop here and impress upon you the importance of doing this with your household team. If you’re married, you’ve got to do the budgeting with your spouse.
If I did this by myself, it would be me alone, yelling at a computer screen. That’s sad in itself.
But, then I would take my deranged self to my husband and start yelling at him.
Suddenly, our money problems would turn into just another thing the wifey is nagging the hubby about.
Not good.
You don’t want to turn the budgeting process into something that will drive you and your spouse apart. Divorce lawyer fees will most definitely throw off your budget.
So turn on some Norah Jones, pour a glass a wine, and get ready to get naked about your spending habits.
How to Budget
I digress. Let’s go back to our excel spreadsheet. Make a section for your income- what you’re getting paid. Then, make a section for expenses- what you’re paying others.
Then, make a section for what’s left over- this is the money you’re paying your future self each month.
Decide what you want to call a month. We usually go from the 30th to the 30th.
I’m going to be honest- This is difficult. We both get paid biweekly but the bills are monthly. Some months have 5 total paychecks for us and others have 4. So, we have to account for that in our projecting for the next month.
We put all our spending on credit cards for the points and pay that off every month, so we have to factor that in as well. Budgeting manually takes a little finagling.
Since USAA has the option to link other cards to it's interface, we linked our credit card accounts to USAA and use the built in budgeting tool to track our expenses. That tool isn't perfect, but it makes our spreadsheet a little easier to compile.
We try to make sure we’re not double accounting for income. If the expenses get double accounted for, that’s fine, we’ll have more money left than we thought. That’s better than having less than we thought.
Finally, the excel sheet for us is just for our take home pay. We use Personal Capital to track all our other accounts like IRA's, 401k's, FSA, HSA, investment accounts, along with our net worth.
My Future Backyard: Daybreak over an Olive Grove in Tuscany
The Budget Date
At the end of every month, my husband and I sit down and look at the spending for the past month and fill in our spreadsheet.
Then, we look at our savings goal and fill in the spreadsheet with the income and expenses for the upcoming month.
If you’re a salaried employee, it’s easy to predict your income. You can fill in the monthly bills that are set. Then adjust your discretionary spending to meet your savings goal.
How to Get Out of Debt
Want to make a big dent in your student loans? Want to get out of debt? Making a budget is the starting point.
Start tracking what you’re spending. Start tracking your income. And keep a record of it to review as a team every month.
Once we started tracking our expenses, it was easy to find places we could optimize. We cut back on spending at restaurants, vending machines, Starbucks… etc.
With a few small changes, we were able to dramatically increase our savings rate.
Whereas before, $4k a month towards loans felt like a lot, after budgeting, we could swing $7k easily. Some months, we find ourselves saving $8-10k, so we are able to chip away at the loans that much quicker.
How to Become a Millionaire
So, if you want to make some serious progress on your net worth, this is your homework: Sit down with your household team, analyze your spending habits last month, and get to budgeting!
And all the sphincters around the world tightened all at once.
Rephrasing.
Put on some Ray LaMontagne and your sexy oversized reading glasses. Get comfortable and come up with a plan to pay yourself more.
Think Tuscany... Mykonos ...Aruba ...Maldives…large green swaths of perfectly maintained golf courses...rest, relaxation, sleeping in!
How are we getting there?
Let’s make that plan. Now go!