Everybody cringes when they hear the word “budget”, even me! It’s got this negative stigma all weaved around it – we assume it’s restrictive and limiting, which couldn’t be further from the truth. You’re going to spend within a budget so that you’ll be free from your current limitations ASAP.

Can you imagine what it will be like when you owe NO minimum payments? 

Can you imagine how much extra spending/ saving money you’ll have each day? 

We’re working toward that vision and toward the larger big crazy goal we’ve talked about before. 

Have you ever noticed that some of the wealthiest people seem to be almost incognito? That Millionaire Next Door or even Warren Buffet who still lives so humbly are some of the most down-to-earth people you’ll see – it’s time to quit flashing your credit cards and buying everything in sight. It’s time to live more like these guys – they budget, spend less than they earn, and don’t buy stuff they don’t need. 

So, What is a Budget?

It’s a plan that directs your money before you have it, ensuring you only spend money you actually have. A budget is your custom plan to allocate the money coming in, so you can use each dollar responsibly and to its maximum potential. 

If you’ve never followed a budget before, or if you have, and it “didn’t work”, you may be rolling your eyes at me right now. I need you to reel it in and trust me – release those feelings of a budget being limiting and begin to reset your point of view to it being the key to unlocking your freedom. 

There are lots of ways to do this, so don’t assume you know this already. 

You’ve got to figure out a standard budget for yourself, so that you know how much you need to hold onto for your expenses, and you can write a big fat check to the debt at the top of your list with the rest of the cash.

You never want to be unsure what you can pay to your credit card, and you definitely don’t want to send them money you needed for the utility bill. 

Starting your First Budget

Begin by writing the income you expect to receive over the next four weeks at the top. Depending how often you’re paid and how many streams of income you have, you may need 1-4 lines to complete this. Draw the line and write the total of your income after you’ve added it all up. 

Now that you can visually see the amount of money you expect to be coming in at the top of your page, you’re thinking “wow, so where does it all go?” ….Exactly!!!!

Big results won’t come without a little shock to the system.

Priorities First

Start writing out your expenses. Begin at the top of the page with the largest ones, like rent or your mortgage, followed by necessities. These are things like day care and transportation. You can’t likely make it to work if you’ve got kids at home, if you don’t have gas money, or if you don’t pay the car note/ bus fare. 

Are you contributing to a retirement fund or still building savings for an upcoming expense? Those savings values go next. 

Always keep your savings at the top of your list. 

Then follow those items with utilities, a modest amount for groceries  each week, and any other absolute necessities you can’t live without.

This doesn’t include gifts, out-to-eat, extracurricular activities, gym memberships, bar tabs, birthday celebrations, or any other items that are not essential to you and your family’s function for the week. Before any of these items, you’ve got to prioritize your debt-payoff items. 

Part of this process is learning to prioritize your own needs over spending money on things that society thinks you need. Pay yourself first, as many money gurus out there say, which supports the idea that, if you wait to see what’s left over after the bills, there won’t be any savings, and the future you will suffer from this.

Are You Into Numbers?

If you’re a percentage gal, there’s some wisdom out there that says your needs, such as housing, transportation, utilities, and groceries should amount to about 50% of your take home paycheck value. The other 50% is split: 30% toward wants and debt, 20% toward savings.

I’ve also heard that if it’s tough for you to be that detailed, an 80/20 split is good too. That would be 20% to savings and 80% to whatever else you need to pay for. 

I know when I started, my numbers totally did not look like these percentages at all. If that’s you too, remember this is a work in progress. I “couldn’t afford” to save anything and my needs were like 60% and my debt took over the rest. We had 0% left over for savings, which is obviously an issue.

Over time, you’ll be paying down debt and you can increase your savings while decreasing your “needs” category just like I did. 

This is Where That Pay-Off Method Comes In

Remember that debt pay-off strategy you selected? 

Below your list of necessities, list your debts in order, starting with the one you will pay off first, followed by all the rest you’re making minimum payments on.

Your necessities and creditors should now be in pay-off order, with the value of the monthly bill requirement listed down the page for each item. Subtract those values, in order, from your total income for the month. The number you get at the end can be a shock whether it’s negative or positive. 

If it’s Negative

If it’s negative, you’ve got to make some serious, and possibly controversial moves to increase your income and decrease your financial commitments. Start with calling your creditors to negotiate lowering your terms. 

If you’re contributing to retirement, consider reducing the amount (especially if you’re under 30) to only what is required to get the employer match. No match? You can consider temporarily reducing your contributions to 0, but only for 1 year at maximum. Whatever adjustment you make, set a calendar reminder for exactly 1 year from now for you to increase your contributions.

As one respected Grant Sabatier says in Financial Freedom never leave money on the table. Always contribute enough to get your company match. If you haven’t been contributing, keep your eyes open for some of my upcoming posts, where I’ll teach you all about it. 

Focus on your debt pay down right now so you’re in the position to open an account and start contributing toward your future very soon.

Simultaneously, for the next few months, focus on reducing the largest expenses. You may have to sell the car, move to less costly housing, get a room mate, or switch daycares if you have kiddos.

These large ticket items can blow 60% or more of your income if you’re not paying attention. If these adjustments aren’t possible, you have no other choice but to reduce daily spending, as the latte factor suggests and/ or take on additional income-producing activities. 

If it’s Positive

If you make it down your obligations list and the remaining value is positive, that’s awesome! Double check to make sure there aren’t any necessities you missed or forgot about.

You can still totally take the advice I gave above and try to reduce your largest expenses. 

Sometimes I create a “wiggle” line in the budget with just $40-$100 to keep me from being nervous about sending everything else toward paying off debt.

How Much to Pay to Each Creditor

You should have automatic payments already set for all your current creditors’ minimum payments, so keep that in mind – those are going to come out of your account automatically. 

It may be helpful to print off a blank calendar for the next 4-5 weeks so that you can see the cash flow all laid out. Allocate every dollar you have left over, after your budgeted expenses, toward the top-listed debt. 

Ensure at no point will a bill be due or be automatically drawn with less than necessary funds available. That will trigger over draft fees and a huge messy waste of the cash and delay our forward progress. 

For example, make sure there’s always enough to cover rent or your mortgage payment on the 1st of the month, plus each due date/ milestone until you get your next paycheck. 

What date is your car payment due? Will there be a large enough balance in your checking account to cover that automatic payment? Make sure so. 

Can you Behave Yourself?

(Where have I heard that before? hmmm.)

To make this work, you must disrupt your spending habits. Big results won’t come without a little shock to the system, so you’re going to stop spending on credit and begin paying cash for everything. This may prove to be nearly the most difficult thing you’ve ever tried to do, especially the first month.

Bring your lunch, pack sandwiches instead of driving through after soccer practice, adjust your social life, make your own coffee, skip a hair appointment (oh the horror!) and make a few sacrifices here and there. 

Remember? You’re in debt up to your eyeballs. 

Fun tip:

Suggest a BYOB Italian restaurant (and buy a cheap bottle) to your mom-friends instead of the froo-froo wine bar for the next meet up.  

Focus on dropping some bad spending habits temporarily until you have a more liquid situation. 

Take out cash for expenses like gas and groceries so that you absolutely cannot overspend. At first, you may have to take out a very low weekly amount and work primarily with what you have already in the pantry. 

You may have to get creative here – realize this is as temporary as you make it. As soon as you pay off one or two debts while simultaneously increasing your income, you can probably take out the whole month’s worth of gas and groceries at once. 

Honestly, the envelope system really helps. There are still months (like this one!) where I revert back to the envelope system to maintain my budget. Honestly, I love using these beauties anyway.

If you’re a chronic over-spender, I do recommend you follow the envelope system versus using any credit cards. There’s some interesting psychology behind spending cash versus credit, and you don’t have to understand it to reap the benefits. 

You should be able to start seeing a clearer picture and maybe even a pattern throughout the month. Anytime you have your cash for food, plus enough to cover the bills until the next time you have a paycheck coming in, you can pay all excess toward that top debt item. 

Start Where You Are…Now

Every day and every month look at your numbers, become obsessed for this short period of time. Constantly think about what you can do to earn more and spend less simultaneously. The Goal here, is to pay off these things that are literally holding you back like cufflinks and chains from having the abundant life you dream of. 

Initially, you’ll work with what you’ve got – your current income, your current debt, your current value of housing, and the current interest rates. Tackle the current situation, because these are your circumstances at this time and ya gotta start somewhere. 

In upcoming posts, we’re going to explore decisions you can make to alter the value that you owe (sell the car? Or Rent a cheaper pad?), adjust interest rates (are balance transfers right for you? Should you consider refinancing the house?), and what else you can do to “find” extra cash. 

Pushing Harder

If you have space in your brain for this (avoid overwhelm here – just do what you can handle), think about how you can get extra cash to make ends meet or to accelerate the payoff. Were you meaning to sell that futon in the guest room anyway? Is there a cheaper grocery store that just opened around the corner you’ve been meaning to try? 

This weekend might be the time for you to implement these small changes. Every value you can earn extra and every item you can pay less cash for, frees up your paychecks for the bills, thus accelerating your journey. We will continue to discuss this as we move forward as well.

Long-Term Goals

Remember, you’re in this for the long haul. This first month of budgeting and paying down debt may not seem ultra successful. Budgets have got to constantly be adjusted, life is different each month, so your budget will be too.

There is no such thing as a “fixed” budget. You’ve got to give yourself time to work into a groove with this, allow for adjustments along the way, and get some momentum.

I had literally $20 when I started this journey myself, so it took me months to just establish a $2K emergency fund before I could even begin to think about paying any extra toward one of our credit cards. 

Give yourself that grace to “begin” this process no matter how long this first part of your financial journey takes you and no matter at which level you begin. Teach yourself, with each step of the way, that you do not deserve to feel shame over these numbers, the process, or how you got here. 

A Bit of Encouraging Truth

Realize this is a rocky road and that to be successful with this, you have to be more committed than anyone you know. It’s not about being debt free just to be debt free or to have bragging rights. Remember those big amazing goals you thought about two weeks ago? 

You’re destined to fall off the wagon. Just try to minimize the time you spend off and always get back on with renewed commitment. You’ve got to begin to believe, even if you have to tell yourself out loud several times a day, that you’re making positive choices toward your big goals. 

There’s some interesting psychology behind spending cash versus credit, and you don’t have to understand it to reap the benefits. 

Accept yourself- your past, present, and future, and as I like to say, be completely okay with your crazy. Everyone’s a little nuts, including me – I totally admit it! But a big part of confidence in yourself and in the decisions you’re making is to totally accept, with open arms, your own, unique level of crazy. 

If you find that you need a bit of a support system, talk about what you’re doing with a few trusted people who you know will rally behind you. Be warned, lots of people may think you’re totally crazy – and may not be as supportive as you expected. I found that some Facebook groups are really helpful as far as accountability.  Look for some hosted by the budgeting app you use or maybe other moms on the debt free journey as well. 

Of course, the Happy Healthy Abundance private FB group is here for you too. Inside you’ll find other supportive moms, just like you, who are likely on this same journey. Plus you can just post your questions in there & I can answer you directly.

If you need help organizing or prioritizing your debts or your spending habits, I’m only a DM or an email away. The time and stress I can save you by helping you walk through this process is of a value much greater than I would charge. Plus, even if you can totally do the rest of this and go through the motions to pay things off yourself, it’d be great to know you started on the right foot. 

Stay tuned for the next post! We will talk through how you handle surprise expenses through this budgeting and debt-payoff process. 🙂