Budgeting 101
- Jackie Vermeulen
- May 31, 2016
- 4 min read
Money can’t buy happiness. True story. Money management, however, can provide peace of mind. Knowledge is power even if you’re living on PB&J the last few days before the next payday.
Ignorance is only bliss for so long, so take control of your finances and know those numbers. This is where your budget comes into play.
The most important number you need to know when you start budgeting is how much you make at the end of each month. After taxes. After insurance is taken out. You need to know the amount of money that shows up in your bank account. Pay day!
Once you have that number, the work begins:
Take out your 401K or retirement savings first.
Once it’s gone you won’t miss it. But you will miss it when you’re older if you don’t take the time to save it up. Depending when you start, you can double or triple your savings by the time you retire! Consider it a gift to yourself.
Max out your company’s match when possible. If your employer doesn’t offer a retirement plan, do this…
Now subtract your ever-important retirement savings investment from your starting number.
Evaluate your wants vs. needs.
You need a place to live. You need food. You need insurance. And you need to pay off your student loans. You want new clothes. You want to go out for drinks. You want the nonstop flight.
Start your budget with the necessities. Then once you’ve accounted for everything else, see where your “wants” can fit in.
Of course leave room for a splurge now and again. Your budget is kind of like your diet; you need a little wiggle room for the salted caramel ice cream you keep in the freezer. And maybe your salted caramel ice cream is a fresh manicure or concert tickets. You need rewards (small ones, please) for working as hard as you.
Categorize.
Split your budget into categories like food, phone, rent, personal spending, entertainment, kids, and miscellaneous (you know, the it-was-a-bad-month-because fund), etc.
Also have yearly allotments for clothing, the holidays, and your insurance deductible. To fit this appropriately into your budget if you’re living month-to-month, divide these expenses by 12.
Prioritize credit card debt.
The longer it takes you to pay it off, the more money you will be giving away to the credit card company. Pay off your debt as quickly as you can…which means it’s time to make sacrifices. Cook at home. Avoid spending your lunch break shopping on Amazon. Oh, and while you’re at it, pack lunch too at least a few days a week. Put all of that money toward paying off your credit card debt.
Pay off the debt highest interest rate first because that’s where the money pit is.
Then when you’re debt-free you can add some fun back in and put extras toward the responsible things you be doing (see above).
Expect extraneous expenses.
Her birthday was this month. It’s the holiday season. We went on vacation. The HVAC broke and it's making you sweat like a teenage boy about to ask a girl on a first date.
There will be something that makes every month a “bad month” for your finances. Stop using these things as an excuse for not getting your finances together and set aside a portion of your budget to cover these events.
Set savings goals.
Your first savings goal is to have enough money in your savings account to pay off at least three months of living expenses in the event you lose your job or have an emergency. Then look toward the future: mortgage down payment, future car purchases, and kids’ college funds.
There’s an app for that.
I manage my budget with an app called Goodbudget so I can enter my expenses before I even leave the store parking lot. With the app you can split your money into customizable “envelopes” to make it easy to keep track of the different areas of the budget. It allows up to four devices to be connected to an account so the whole fam can help keep the books.
Compare your numbers at the end of every month with the amount you have in your bank account and what you owe on your credit card. When they match up, you’re right on track. Spending too much? Take a look at your wants vs needs again (don’t forget that it’s-a-bad-month fund!). Ahead of the game? Sweeet!
Hold yourself accountable and be the accountant you deserve. Be honest about your numbers and work diligently to keep track.
You’ve got this, you super budgeter you!
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Jackie Vermeulen is the founder of The Career Mint. She is the messenger (put the gun down, you!), working closely with the mentors and some off-site experts to address the hard-hitting career topics in articles like the one you’re reading now.
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