Budgeting 101: Where To Begin

Tim and I have been budgeting intentionally since September. I say intentionally, because before then we had been budgeting for our bills, but any income beyond that was one big slush fund. The leftover money didn't have a purpose, it was just sitting there, waiting for me to spend it on clothes for the girls and dinners out. Not going into savings, or paying extra on our debts. Now every dollar that comes into our home has a job.

People, budgeting works!

I got the idea to start sharing more about budgeting, when my husband suggested that I could probably make money by helping other families with their budgets. Now, I don't have nearly the amount of confidence in my budgeting/frugality knowledge as he apparently does, but I have learned a thing or two and I do feel like we've made some good progress.

Over the last 7 months, we built up a $1,000 emergency fund and we've paid off approximately $7,000 of our debt! This was a combination of credit card debt, both mine and Tim's student loans, money we owed my parents for the beef we bought last fall, mine and Rosalie's hospital bills. We have gone from having 6 debt line items in our budget to just 2! However, I feel like I should disclose, we were able to payoff 2 of those debts because of tax return.

So, what's the first step in setting up a household budget? Knowing what you already spend. You can figure this out one of two ways.

1. If you mostly use a debit/credit card, pull up your last bank statement, either online or your paper copy. Go through each charge a categorize it (ex. bills, groceries, eating out, diapers/wipes, kids, entertainment) and then add up each individual category.

2. If you mostly use cash for purchases, then spend one month keeping receipts and writing down every dollar you spend. Categorize your purchases, and then total each category.

Knowing what you already spend will help you figure out what categories you could potentially cut back, and where you should you focus your attention. Most importantly though, it will help you set-up a realistic budget. A realistic budget is much easier to stick to, then an "ideal budget" where you under estimate how much you spend each month on Biggby, eating out or buying clothes for your girls who already have full closets. No, I'm not talking about myself there...oh wait, yes I am.

It's my belief, that an unrealistic budget and trying to cut too much too soon, is what kills most household budgets. The race to successful debt elimination, budgeting and frugality is not a sprint, it's a marathon. Occasionally, I have to remind myself of that too.

Coming up next week: Setting Goals and Your First Budget