Through my previous articles, I have outlined the importance of changing your life and getting out of debt. Debt is one thing that can hold you back from reaching financial independence. I have also talked about some strategies that have helped me spend less from cutting my own hair to biking instead of driving. And of course just this last weekend, I announced that my wife and I are debt free! Everything that I have talked about is important, but I haven’t given you an overall strategy that protects your money. This one item has helped organize and help keep more of my money in my account. This one strategy is:
BUDGETING
I have analogy about the importance of budgeting. The analogy goes like this:
Jesus was crucified to save us from our sins just like budgeting saves us from overspending.
This is my first time mentioning my religion, but I do believe that it is important to show who I am. I believe in Jesus Christ and I read the Bible. Therefore, it is an important part of my life, but that’s not what this article is about. So, let’s move back to the importance of budgeting.
Budgeting is one of my favorite things. I update my budget daily. It is the first thing I do in the morning. I open up Quicken and download my transactions. After I download my transactions, I go check the accounts that downloaded new transactions and categorize those transactions. Most of the time, Quicken categorizes it correctly, but sometimes I need to correct the auto categorize. I then go look at my budget. If there is ever something that pops up or changes, then I allocate more money towards a category and then take some money from another category. This is part of the budgeting process, because you are required to stay within your budget, but sometimes you will go over in a category, which requires adjustment.
This is not the first step to budgeting, but part of the process. The first step requires you to plan ahead for a month of expenses. I usually allocate expenses in the following order.
Donations – My wife and I give 10% of our income to the church, because the bible guides us to give a tithe of 10%.
Savings – This is where the minimum of 10-15% should be placed in the budget. It is so important that you save monthly.
Groceries – Food is an important staple of your life and you must have money to purchase food.
Rent/Mortgage – A place to live is a requirement and must come before any extras.
Electricity – We all use this and it is important to have lights and water. These items must be paid monthly.
Auto – This category requires money to be able to pay gas and repairs.
Insurance – You must be able to put a number in the budget for auto, home, health and life insurance.
Debt Payments – This category is where you allocate any money towards your monthly minimums in debt payments.
Clothes – Personally, this budget is $0 most of the year for my wife and I, because when you have enough clothes then you don’t need to buy anymore. This becomes more of a want after you have enough.
Extra Debt Payments – When you are motivated to get out of debt, then you will be taking any money leftover in the budget and putting it towards debt.
Wants – If there is anything that you “want” but don’t necessarily need, then you would put that in the budget after any debt payments.
Extra Savings – Whenever we have money leftover, we put it into savings with a goal of trying to save 50% of our income.
It may seem like a lot of things to keep track, but it is pretty easy once you have a system. I go even more in depth when tracking our expenses. For example, I have entertainment broken down into five different sub-categories. I do this so that I can know specifically where my money goes each month.
Entertainment: Sports
Entertainment: Books
Entertainment: Her Blow Money
Entertainment: His Blow Money
Entertainment: Movies
Another example is that I have four sub-categories for auto.
Auto: Gas
Auto: Repair
Auto: Registration
Auto: Tolls
If you are just starting out then it is just important to just start by using the main categories listed above. You can go more in depth when you get more experienced with budgeting.
Why do I think that budgeting is so important? I think it is important because it gives you control over your money. You have a plan. You tell your money what to do. The money just doesn’t leave and you are no longer struggling to figure out where your money went at the end of the month. If you are struggling with money every month, then you need to start budgeting. Many people don't want to budget, because they think that it will restrict your spending. Lot's of people feel the exact opposite, because their budget showed them that they had the money to spend and they felt in control of their money.
