Budgeting for Newbies (and non-Nerds!)
The past couple nights in the My Total Money Makeover chat room I have been helping newbies to the Dave Ramsey debt reduction plan how to make up a budget. In both cases this was the very first real budget either one had ever made, and they were intimidated at first by the very idea.
Folks, I am living proof that the idea of budgeting is much harder than the actual budgeting itself! I didn’t learn how to do up a real workable budget until literally right before my 34th birthday. I think the connotation of the word “budget” itself is something usually found in a B grade horror movie. So in true B grade horror flick fashion, let’s go kill this monster.
The basic idea of a budget is planning how and where and when your cash will flow through your accounts. Money is fluid, like water; it flows in and it flows out. The idea is to get more flowing in than flowing out, of course. So let’s start with the simple side of this equation for most folks: the income. Grab a piece of paper and write at the top INCOME then list the dollar amount you can count on. If you have a variable income, I’ll cover that in a later post.
Now we are to the painful part: the outgo. Always start off with the necessities, what Dave Ramsey calls “the four walls.” These are FOOD, HOUSING, TRANSPORTATION, and CLOTHING. If you have food in your belly, clothes on your back, a roof over your head, and a way to get to work and back you can always survive. Also note: for budgeting purposes food is groceries, not dining out! Housing includes your utilities as well as your rent or mortgage payment. Clothing is just what is necessary for work. If what you have is functional and appropriate, then you do not need to buy more. But if you have kids, they do need clothes replaced often as they do have that bad habit of growing. LOL Transportation includes those nasty mean vehicle payments, gas in the tank, and insurance. Write each of these items out on its own line, so you don’t forget something or accidently include it in your budget calculations twice.
Now that we have covered the necessities, we get into what I not so affectionately call the “nickel-and-dime to death” part of the budget. This is where the nonessential but extremely convenient parts of your budget lie, and also where some people whittle away their money every month. List things like cable, phone, memberships, credit card payments, and just about anything else people can think of that you pay. Be sure to only list the minimum payments, as any money “left over” from paying the bills goes into first the BEF (Baby Emergency Fund, which is baby step 1) or the Debt Snowball (baby step 2).
When you write everything down, and look at it staring at you in black and white (or blue, or purple, or red…or whatever color crayon you pull out of the box!) you will often see places that you can cut your expenses. This is why it is vital to write your budget down! Seeing it in the light of day staring you in the face is the best way to find soft spots to attack and reduce, and when you are working to reduce your debt (hopefully to ZERO!) every little bit you can squeeze out of your budget helps in the long run.
Now, you have just made your first budget…and it isn’t nearly as scary as the back of the DVD cover made it sounds, right? In fact, instead of a real monster, you can see it’s really just an actor in a bad rubber suit 