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The First Step to Financial Freedom: Budgeting

Updated: Apr 13, 2019

Hello Money Talkers! This is your author Alexis Bertoldo. Here, it doesn't matter how much money you have, it's what you do with it. This blog post is all about budgeting. I feel as though budgeting is really the first step to financial freedom. How can you pay off debt, save, or even invest if you do not know how much money you have coming in and going out? The answer is, you cannot. You have to know your numbers in order to maximize them.

This next part is where I may lose some of you. It may sound boring, but it's really super simple and it's NECESSARY if you want to get your financial life on track. So pay attention people...

To start your budget all you need is a piece of paper and a pen. If you want to get fancy you can make a spreadsheet (I love spreadsheets); whatever floats your boat.

Once you have a new blank sheet, label it "My Budget" (or whatever label tickles your pickle). Then I want you to make two columns. The first column on the left will be labeled "income", this includes any money you have coming in consistently every month (salary, tips, pension, settlement money, child support, etc.). In the second column on the right, you enter the dollar amount of your income. Next, you will add your living expenses under your income. So under "income" label that particular living expense, such as your car payment, gas, cell phone, rent, utilities, insurance, childcare, credit card payments etc. Then you will fill in the dollar amount for that expense in the column to the right of it as a negative number since it is being removed and not added. Below your living expenses, you will enter your nonessential expenses. Nonessential expenses are comprised of things like your gym membership, any subscriptions you have (Netflix, hulu, pandora, boxycharm, etsy, etc.), eating out, drinks, nails, shopping, etc. Then you write in the dollar amount for that expense in the column to the right of it as well.

This is where people usually mess up their budget, and why they do not understand why they cannot seem to save. ANYTHING and EVERYTHING you spend money on monthly needs to be accounted for ACCURATELY in your budget. You really have to be honest with yourself. If you lie, you are only lying to yourself, and that will be reflected in your budget when things do not add up. It's always better to overestimate your budget than to underestimate it. Do not write down what you hope you spend or even what you may think you spend, Write down what you actually spend. I suggest looking through your last bank statement to see your past spending habits. For example, when I first started budgeting I thought that I only spent about $200 a month eating out. WRONG! When I say wrong, I mean... ridiculously off base here people. When I wasn't saving what I thought I should I went through my bank statement and highlighted any expense that was eating or drinking out. Turns out that the $200 I thought I spent was more like $500; more than double my original guess. So it is in your best interest to make the effort to find the accurate dollar amount you spend on your monthly expenses.

Now that your brain has turned to mush trying to figure out all the places your money goes and exactly how much you spend on what... I want you to sleep on it. I guarantee you, after time passes and you look at it again with fresh eyes, you forgot an expense somewhere. I literally forgot groceries my first time doing my budget... but I remembered to allot myself money for beer, so there's that (hahaha).

Once you have all of your income and expenses accurately entered onto your sheet, label the row below your final entry "Total Monthly Cash Flow". Then subtract all of your expenses from your income and enter the dollar amount you end up with in the column to the right. Your monthly cash flow number is reflective of how much money you should have left over at the end of the month, or unfortunately, what you are negative.

If your total monthly cash flow number is negative then you are at a deficit, if it's positive then you are at a surplus.

If you are at a deficit... DO NOT PANIC! It's ok. A lot of people have been there or are still there. This is the whole point of creating a budget; to take charge of your money. But how do you do that? Follow these three simple steps.

Step 1: Go through your expenses, line by line, and differentiate between which ones are needs and which ones are wants. Food, shelter, insurance, transportation, etc. are needs. Eating out, getting your nails done, that concert you have been dying to go to... those are wants. Now once again, don't freak out. You do not have to cut out all of your wants... only the ones that are unnecessary and you can part with (like that concert). However, I do want you to spend less on your wants instead of cutting them out completely. So instead of spending $500 on eating and drinking out, you could drop it down to $200 (Like I did). Maybe instead of getting your nails done every week, you could do every other week. The whole point I am trying to make is to cut back on your wants.

Step 2: Go through your expenses, line by line, and see how you can cut the costs of your needs. I know... this sounds crazy. These costs seem fixed, but they might not be. For example, you can spend less on gas by carpooling, you can shop around for a better cell phone plan or car insurance quote, you can even spend less on groceries or utilities. Every little bit helps. Even if you only cut $10 off of your fixed expenses a month, it can add up. $10 a month for a year is $120. That $120 you could put towards debt, savings, or investing. And that number is from only saving an extra $10 a month! Imagine if you saved more. The possibilities are endless.

Step 3: Stick to your budget! Making a budget means nothing if you do not use your money how you planned on using it. Consistency is key. After you get used to sticking to your budget it becomes second nature. I promise. For example, in my budget, I allow myself $240 a month to spend on groceries. So every other week when I go grocery shopping I only bring $120 in cash with me... because I know how I am when they let me loose in Walmart (I go in for a couple of things and end up leaving with a cart full of items I do not need and missing the things I went for in the first place). This way, I physically cannot spend more than my allotted amount.

If you are at a surplus... while you are doing better than most, you are not out of the woods. After all, the whole point of budgeting is to take charge of your money so that you can have more of it. That being said, you still need to complete steps 1-3. Differentiate your wants from your needs and eliminate the wants you can part with. Cut your costs where you can (this may take discipline, but we got this!). And stick to your budget! If you follow these three simple steps you can make your surplus even larger. The more monthly cash flow you have, the more wealth you can build.

Once your budget is created and edited to maximize your money, you have taken step one of getting your financial life together. Now YOU are in control of your money, and not the other way around. You are now one step closer to financial freedom, congratulations!

Just for sh*it's and giggles, here is my ACTUAL personal budget for you guys to look at. I did mines on Google Sheets. Doing it on Sheets is pretty cool because as I edit existing expenses the sum feature automatically updates all the math for me (and I hate math).

If you have issues making your budget or would like me to help you figure out where you can cut costs feel free to comment or contact me via the contact me page. I am here to help.

#personalfinance #financiallyfit #themoneytalk #budget #maximizeyourmoney #youcandoit

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