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Now that you know what you already spend, it's time to set some goals. Take some time to reflect on what you want to achieve.
Do you want build up an emergency fund? Pay off your debts? Cut back your spending in one or two areas? Take a vacation? The most important part of this step is to make sure it's a measurable goal—by this I mean you need to know the dollar amount you are trying to reach, and possibly the date you want reach it. Write them down and talk about them with your partner, then together prioritize them. Prioritizing your goals and being realistic are also key. One thing I've learned over the last 8 months, is that denying yourself something you really want until you've saved up enough cash for it, feels so, so, sooo good! Delayed gratification is where it's at—no guilt, only the joy of having something you've worked hard to get.
Tim and I focus all of our attention on one goal at a time. We quickly learned that we could achieve our goals faster by focusing on one at a time, rather than throwing small amounts of money across the board. Don't feel bad if you have to reevaluate your goals a couple months later. Life happens, and we need to adjust our financial goals accordingly.
Once you know what you're already spending and what your goals are, you can start working on your first budget. I'm going to break it way down, and explain one task at a time.
Step 1: Decide Where You're Going To Track Your Income and Your Spending
Until I discovered YNAB, which I LOVE and recommend to everyone, we wrote our budget out on paper every month, which I hated and would never recommend. You could also easily set-up an excel spreadsheet, or probably even download one somewhere online.Step 2: Name Your Master Categories and Your Line Items.
This step should be relatively easy, since you should have most of your spending already categorized from when you figured out how much you spend. There is no right or wrong, have as many or as few categories and line items as you want.
Currently in YNAB, we have 6 master categories:
Monthly Bills
Everyday Expenses
Debt
Rainy Day Funds (these are once in awhile type expenses such as medical, home maintenance, Christmas etc.)
Savings Goals (this is where we track our savings towards things like a new car, vacation or big house projects.)
Giving
Our master categories are then broken down into more specific line items, which is where you assign dollar amounts. For instance, our 'Everyday Expenses' breaks down like this:
Step 3: Calculate Your IncomeGroceriesIf you're unsure if something should be it's own line item, try it out for a month or two. My opinion is it's better to start out with too many categories and then condense them a couple months down the road, once you're in your groove. For example, we used to have a line item called 'clothing' which was where we budgeted for clothes for everyone. But, after a couple of months we deleted it and started assigning clothing purchases to either 'Stella and Rosalie' if it was clothing for either of the girls, or 'Misc. Unforeseen' if it was something that was NEED for me or Tim. Any nonessential clothing purchases, come out of our personal fun money.
Fuel
Stella and Rosalie (Anything that is purchased for the girls, clothes, diapers etc.)
T. Fun Money (We give ourselves $20 per week. We can spend it on whatever we want. No judgements!)
J. Fun Money
Family Fun Money (This is where we budget for family outings like the zoo, trips for ice cream in the summer)
Restaurants (Generally this is for family meals only. If I want fast food on the way home from grocery shopping, or Tim wants to eat lunch out, we use our personal fun money for that.)
Hair Care
Date Night
Misc. or Unforeseen (This money is used to cover anything unexpected that comes up, and sometimes it's used to cover over spending in other categories)
This step can be a little tricky, if you're income fluctuates month to month, or week to week. If that's you, it might be best/easiest if you follow the YNAB line of thinking, which is "assign jobs, only to the money you have on hand." Meaning, you won't work out your whole month's budget at one time, you'll budget your money as it comes. You can check out the YNAB blog for more info on budgeting a fluctuating income.Next week I'll cover Step 4: Give Every Dollar a Job and Step 5: Go With The Flow.
Tim is salaried, and is paid weekly, so his income is super easy to predict. I have been babysitting, working at a before and after school program and doing a little bit of freelance work. Since my income fluctuates, I normally low ball my predicted income and add it to Tim's monthly income. That's how I come up with the number of dollars that need to be assigned a job in our budget.
Once all of our debts are paid off, we'll build our buffer up to cover one month's expenses, so that we can live off the last month's income for the entire month. We're getting a taste of what that's like now, because we keep our "new car fund" money in our checking account. It's a glorious feeling, and has been a great way to keep us encouraged to continue to be intentional and frugal with our money.
As always, if you have questions or want to add to the discussion, leave a comment here on the blog, or on our Facebook page. We love hearing from you!
