Budgeting: Like Meal Prepping for Your Wallet
Managing your budget without a plan is like cooking without shopping for groceries first. You may feel like you’re just scraping by with the resources you have. But with a little planning and meal prepping, you can make the process a breeze.
Budgeting is like meal-prepping for your wallet and bank account. While it may seem tedious to front-load all that work at first, soon you will start having fun with the process and the results.
Here's what you need to know.
Why Have a Budget
- Useful Tool
If you’re experiencing financial stress or want to secure a financial future, building a budget is the first step in the right direction.
- Spending Control
You can more easily keep track of your expenses and avoid accidentally overspending because you are acutely aware of your income each month.
- Debt Management
You can build a system to pay off your debts slowly but surely to avoid problems like late fees and high-interest rates.
- Savings Enhancement
Your budget can help you build up savings from your income and grow your nest egg over time.
- Stress Reduction
Provides a sense of control, which can improve your mental well-being.
“A budget is telling your money where to go instead of wondering where it went.”
– Dave Ramsey
Here's what you need to know.
Gathering Your Ingredients: Income and Expenses
In terms of your budget, the ingredients you are working with include your monthly income and predictable monthly expenses.
The first step to building a budget is to get a clear view of your finances. Take a close look at your monthly income, your monthly expenses, and then select a few financial goals which you can use to shape your budget.
Assess Your Income
Start by calculating your real income.
- Gross Income: The amount you are paid on "paper."
- Net Income / Take Home Pay: The amount that appears in your paycheck that you can spend.
- Discretionary Income: Any income you get outside of your paycheck, like an allowance, trust, or pocket money from selling handicrafts.
Determine your net income for a month. Consider this number the outer limit of your monthly budget: How much you can safely spend or save.
Record Your Expenses
Next, make a list of your expenses.
- Rent / Mortgage
- Utilities: Water, electricity, natural gas, sewer, garbage
- Household Services: Internet, insurance, television streaming
- Debt Payments: car payments and other routine loan payments
Use your bank transaction list and online accounts to get a clear view of how much you spend on non-bills.
- Groceries
- Restaurants
- Clothes
- Household Supplies
- Outings and fun activities
- Entertainment Subscriptions
Some of these are necessary; some are not. Mark the ones that are must-haves and the ones you could cut if necessary.
Let's establish your motivation.
Identify Your Financial Goals
Identify and write down your financial goals. This is a good time to come up with a few goals defining why you are building a budget.
- Saving up for a car or house
- Paying off debts
- Building up an emergency savings fund
- Saving for a vacation or special purchase
Choose a strategy that works for you.
Budgeting Recipes to Try
The next step is the process of meal-prepping your budget, is to decide which budgeting recipes you’re going to try. You don’t have to use every budgeting strategy at once. But over time, your mental “cookbook” will become diverse enough to skillfully manage your budget with several strategies every month.
Sort the Pantry: Prioritize Needs vs Wants
Prioritizing your expenses is a lot like sorting your pantry when checking for ingredients. Some, you will enjoy and use every single month, some you haven’t thought about in years (but might still have a subscription, anyways).
Consider what you need vs what you want:
● Internet vs Netflix
● Groceries vs Restaurant Orders
● Work clothes vs Impulse Shopping
Sort your expenses first by importance and then by how much they make your life happier. Happiness and stress relief matter.
Place the things you could really do without at the bottom and use this opportunity to cancel subscriptions and habits that don’t contribute to your life anymore.
The 50/30/20 Rule and How to Use It
The 50/30/20 rule is a common budgeting strategy that works for many, but not all, people. It suggests that you spend 50% of your budget on needs, 30% of your budget on wants, and 20% of your budget on savings.
Split Your Budget into Four Sections
A good budget usually consists of 4 sections that each take up a portion of your monthly income:
● Needs: Rent, bills, groceries, internet, insurance, etc.
● Wants: Entertainment, special foods, toys, outings
● Savings: One or more savings accounts and saving goals
● Debt Repayment: Reducing your debt burden
Take your list of expenses and goals. Sort them into these four categories and calculate how much you must or can put toward each one. If you have any income left over, split it between wants, savings, and debt repayment based on your personal motivations and goals.
Tips for Effective Budgeting
Like any good cook, you will learn more tricks and useful techniques along the way. Getting started is sometimes the hardest part, but crucial to improving your financial health.
You have options, and we're here to help!
Improve Your Budgeting Skills with DebtBlue
Preparing your budget each month is like preparing your meals each week. It takes a little extra effort at first but is very rewarding once the work is done. At DebtBlue, we are dedicated to helping people like you master financial stability and build a positive financial future. We want to empower you to take control of your finances with budget planning just like you might already have taken control of your kitchen time with meal prepping.
If you ever need help cooking up a smart budget or resolving your debt, we are here to offer a free consultation any time. Contact DebtBlue to learn more about budgeting skills and the debt resolution that plays an important role. We’re here to help.