10 Steps To Build A Budget & Get Yourself Out Of The Money Misery Pit! O.K. so you know you should have been working to a budget for some time now, you know that sensible, grown up people know where their money comes from and goes to and you know that if you stay doing what you are doing nothing is going to change and may ever get worse. BUT you just don’t quite know how to get yourself out of the money misery pit and you need some help NOW! Well grab hold of this rope and let me haul you out and onto good solid financial ground. It won’t be super easy, but it won’t be super hard either. Just do what I outline below in my step by step instructions and you’ll soon have everything under control – and think how good that will feel.
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10 Steps To Build A Budget – Step By Step
1 Notebook and Pen. You are going to need a new notebook, don’t use loose pages as they will only get lost. This is the first step of getting your financial act together and those pages need to be together as well! After a few weeks if you want to transfer everything onto a spreadsheet that’s fine, but for now we are going to use good old paper and pen. Don’t, I repeat don’t, go and buy a special account program – remember you are in saving money mode and a cheap notebook from Target is as much as you need to spend.
2 Monthly Income. Work out your monthly income. Now if you get a paycheck every couple of weeks and it’s always the same this is easy – just take one paycheck multiple it up by how many you get a year. If it varies or you are self employed look at what you earned last year and divide by 10. I say divide by ten because this will give you a worse case scenario figure and you don’t want to be using figures that are over optimistic.
3 Monthly Expenses. Make a list of everything, and I mean everything, that you spend money on. Go through your last years bank statements and list down all your outgoings. Don’t cheat now as the only person you will be fooling is yourself. List out all the regular payments such as direct debits and note when they go out of your account.
4 Essential Expenses. Using the above list extract everything that is an essential. Essentials are things that if you didn’t pay them you would be sleeping under a tree in the park and hunting round trash to find food! So essentials are rent/mortgage, utilities, food, expenses for getting to work etc.
5 Non Essential Expenses. Make a list of everything you have spent on non essential items in the last year using your bank statements. Be honest here and don’t start thinking “well I only did that once and won’t do it again”. You need to write this stuff down, that makes it real and stops you avoiding the issue of spending on non essentials.
6 How To Build A Budget. Now you know where your money has come from and where it has gone to this last year you have confronted the truth. Well done – no that doesn’t mean you can go and reward yourself with a lunch out and then a wander round the mall! On a new page of your notebook transfer all your income streams with the dates when you get paid those amounts – say 1st & 15th of each month. If it is irregular payments look at last years payments and work out the most likely dates in the month. On another page transfer all data regarding the essential items. You probably can’t alter your income, but can alter your expenses so look at each item and decide if they can be reduced.
Housing – If you are renting could you move to a cheaper or smaller house or are you locked into staying where you are until the end of your lease? If you are paying a mortgage could you rent out a spare room?
Food & Household – Grocery spending is an area where you can make big savings, start being a coupon clipper, eat when foods are in season and less expensive and meal planning is an absolute must. Be realistic on how much you need to spend, you can always cut back the amount allocated when you become a savvy shopper. Making a drastic cut in your grocery budget and then being unable to keep to it is going to make everyone unhappy and it is unlikely that you will stick to your budget as a whole. If you don’t know what you can reduce it to cut it by 20% and try and stick to that for two months and if you can reduce it further great, but try not to increase it. Stock up on items such as shampoo, cleaners etc when they are on special, seek out the best places to buy, but don’t be fooled into buying things you really don’t need just because they are cheap. Test any new products first to make sure you like them. You don’t want 20 bottles of washing up liquid that smells foul and doesn’t work ! One main change you can make right now is decide that you won’t buy take out and that you will forgo eating out. These are two big areas that can gobble up your weekly food budget in one meal!
Utilities – it is so easy to stick with the same companies year after year, but sadly they don’t reward you for being so faithful or so busy that you don’t get round to challenging what they are charging. Using the figures you have for your utilities spend a morning researching online and contacting suppliers and asking what their best deals are. Look at comparison websites such Power2Switch and see what they suggest. You could save $100’s with just a few hours of your time, compare that to your hourly job rate and you’ll see it’s worthwhile. Also check out the deals on mobile phone plans as there are some great deals out there especially if you are a new customer. And don’t be afraid to ask your existing utility companies what is their best deal, tell them you are going to leave unless they match the company that you have found to be cheaper. You’ll be surprised how often they will magically produce a good deal “just for you”!
Clothing & Footwear – Clothing and footwear is essential, but before you rush out the door to spend on these essential items take a good hard look at what you already have. Obviously if you have children then they will need new clothes and shoes as they grow, but don’t fall into the trap of thinking they must have top quality, high end brands because they won’t be wearing them for long before they have outgrown the clothes and shoes. Target has some great kids clothes and keep a close watch on the seasonal sales and buy for the next year.
However when it comes to yourself I suggest you go through this exercise which I found very helpful when I was spending way too much on clothes and shoes. Bring together all your clothes and shoes arrange then into piles. Trousers, shirts, sweaters, gym clothes etc. Then go through each pile and ask yourself if you are ever going to wear it, if it fits or is it so past it’s best that it needs to be thrown. Once you done that then look to combine outfits into a new outfit, will that shirt look good with that skirt, those trousers with that sweater and so on. I guarantee that you will end up with new combinations of clothes that you haven’t worn together before. Add in your footwear and you are set for a whole new look. No need to buy new clothes as you have just restyled your old ones. Plus think about selling anything that is in good condition, but unwanted on eBay. A great way to recoup some money and put the proceeds into your saving fund.
Don’t forget to add into your essentials budget transport to get to work, haircuts, car servicing etc. If it is essential for you to earn a living then it goes into the budget.
Non-Essentials – On a new page list all the non essential items and take a serious look at these items. Ask yourself do you use that gym membership, how often do you watch Netflix etc. Cancel these items as soon as possible and those which have a while to go before the end of the contract check that they aren’t on auto-renew. Substitution is the name of the game here. Unless you really need to you don’t have to cancel everything, but look to see if you can get the same for less.
7 Seasonal Expenses. You won’t be successful with your budget if you make yourself and others around you miserable. Life is for living so you want to be able to celebrate Christmas with family and friends, but you want to do it knowing that come January all the bills are going to come crashing in. The trick is to work out how much you can afford to spend, keeping in mind your budget on birthdays, Christmas etc and then set aside that amount each pay day. I like to keep this money in a separate account and have the regular amount transferred automatically. Then just dive into it at the appropriate times. Keep a watch on any sales or bargains that come up during the year and don’t be afraid to do your Christmas shopping well before the end of December.
8 Retirement. I know you think you are going to stay young forever, but I have news for you! The sooner you start setting money aside for your retirement the less you will need to put on one side each pay day. Once you have your budget set up then this should be your second priority. Take good advice, create a pension plan and stick to it. Retirement might seem a long way off, but start planning for it now.
9 Buy A Planner – I know this is all about saving money, but believe me the purchase of a planner, one with big blocks for each day is an investment to keep you focused. You can buy them cheaply on Amazon ( Click Here to see the one I recommend )and they have stickers so you can start them at any time of the year. Note down when your income comes in, putting in the amount and when the bills are due, adding in the amount you expect them to be. Subtract the total of your bills from your income. If you find that your bills are bigger than your income then go over your budget again and see what can be removed. If an unexpected expense has come up and you need to do a one off reduction I have a solution. I do what I call “eat the pantry”. I just take a good hard look at the pantry and the freezer and make a meal plan using what I already have. If you only need to shop for fresh fruit, vegetables and bread then you can reduce that pay days grocery shop considerably. Be aware though that you can’t keep doing that as the pantry will soon become bare!
If your bills don’t line up with your pay days then ask the companies if you can move your payments so that those payments come out of your account the day after your salary goes in. Most companies will be happy to agree to this as it shows you are being responsible with your money. Once you have their agreement talk to your bank and get the dates realigned.
Also note any birthdays and special events throughout the year. The trick is not to be surprised and have to rush off and buy something/anything just because you have forgotten someones birthday. If you get invited to a one off event such as a wedding then add it in and start saving for a present as soon as you accept the invitation.
10 Reward Yourself – You could say that the reward of all this is paying off your debts and building up your savings, but we are only human and we operate better if we can have some treats every now and again. Having a planned reward, something to look forward to is more likely to keep you on track and motivated that anything else. Have planned goals both big and small. The big goal might be to save a deposit on a house, look online at houses you might like to buy, print off an image and stick it into your planner and onto the fridge to keep you motivated. A small goal might be to take a vacation, research how much this would cost, break it down into how much you would need to save each pay check to achieve that in a year or 18 months and factor that into your budget. If you have kids you could draw out an thermometer chart showing how the savings are building up – heck even if you haven’t children you could have one on your fridge and colour in the sections as you get nearer your goal!
10 Steps To Build A Budget & Get Yourself Out Of The Money Misery Pit – Summary
Take action now, don’t ignore a financial situation which is only going to get worse. It is very empowering to be taking responsibility for your own financial future and the rewards can be huge. You will have the occasional stumble, but just acknowledge it’s happened and learn from the situation that caused it. Good luck with your budgeting I am sure you will be successful.
Top Tips –
Don’t carry cash, use your cards so you can track your spending more easily. But if you find you are waving your cards around to often and using them to impulse buy then take them out of your wallet and only use them to take enough cash out for that pay check period that you have budgeted for. An empty wallet is always a sobering reminder to keep to your budget.
Any money not spent during one pay check period and not required for the next one transfer immediately to your savings account. This way you won’t feel “rich” and fritter it away on non-essentials.