Hey guys, news flash: you can’t spend more money than you make.
It seems so simple, doesn’t it? But for some reason, overspending is something that many people struggle with. Has society taught us that we can have whatever we want, even if we can’t afford it?
If you spend more money than you make, you’re going to get yourself into a financial clusterf***. It’s really that simple. Digging yourself out of that hole is going to be waaay harder than taking the time to set yourself up for successfully managing your finances from the beginning (but you do have some debt repayment options).
Chances are you have already made some mistakes (because you’re human!) and if you’re in the “digging out of the hole” camp, you need to learn how to budget more than anyone. Perhaps in the past you didn’t have the tools you needed or the sound of reason chirping in your head for how to manage your finances. Well, you do now!
I’m going to help you create a plan for budgeting that will start you on the path to triumphantly managing your personal finances. Budgeting for the non-numbers gal might seem overwhelming, but there are a few simple steps you can take to set yourself up for success.
Step 1: Commit to making a plan and sticking to it
Deciding that creating a budget is worth your time and energy is a great first step, but before you get started creating your personalized budget I want you to remember that in order for it to work, you’re going to have to stick to it. You can spend all the time in the world designing a plan that makes sense and numbers that add up in the right ways, but if you don’t follow the plan, you’re doomed.
Make a pact with yourself right now: you are going to create a budget and you promise to stick to it. Pinky swear.
Step 2: Determine how you’re going to track your budget.
Now that you’ve committed to making a plan, you have to decide how you’re going to track the numbers. You can’t do this in your head, you need to either write it down on paper, put it into a spreadsheet, or use an app (preferably, a lifestyle app for women, hint, hint) that will track it for you.
Nav.it can help you see all of your spending in one place and get AI-driven insights into your spending, savings and investing habits.
Step 3: Determine your monthly take-home income
If you calculate your budget from your gross income (before taxes) you are going to be up the creek without a paddle when it’s time to iron out what you can afford. Do yourself a favor and build your budget off of your net (or take-home) income.
Step 4: Determine your needs and wants
Here’s when you have to get really honest with yourself: what expenses are things that you need and what expenses are things that you want.
Sometimes your needs can be a gray area – you need to spend money on food, but do you need to spend money on organic, grass-fed beef or organic fruit? It’s understandable that you might want these groceries, but determining whether or not you really need them at this point in your life is an important step in managing your budget and the path to financial freedom. I will say, this doesn’t mean you’ll have to sacrifice healthy options, as I share in this article.
Start keeping track of things you desire in a journal, spreadsheet, or inside an app like nav.it, and when you consider spending money on something, think really hard about whether it falls into your need or want category. If it’s a need, you’re going to budget for this expense every month. If it’s a want, we’ll talk later about when it’s appropriate to cave on your craving.
Step 5: Determine your fixed expenses
Fixed expenses are bills you have to pay every month. You need to budget for these bills, especially if you plan on keeping these services. The number you owe for your fixed expenses will stay the same every month (for instance: rent or mortgage, phone bill, insurance premiums).
If you’re budgeting on paper or in a spreadsheet, write down all of your fixed expenses and the exact amount you owe for these bills every month. If you’re using the app, you’ll be prompted to enter your numbers in each category.
Step 6: Determine your flexible expenses
Flexible expenses fall into two categories: 1) monthly expenses that you must pay but that change in value every month (like utilities and groceries); and 2) monthly expenses that you could eliminate if you didn’t have the funds (like new clothes, sports, eating out).
Flexible expenses can be tricky. Some things that fall into this category are needs and some are wants. You have to be honest with yourself about what flexible expenses are necessary and what you can afford.
Prioritizing these expenses is something you’ll have to do on a monthly basis, and the amount you spend in some of these categories will differ from month to month. What’s most important is that you are tracking your spending. I cannot emphasize this enough.
A good way to handle your flexible expenses (and ensure you spend only what you plan to spend) is by putting your monthly “flexible cash” allotment in an envelope, and spend from there. Once it’s gone, it’s gone.
Let’s say you budget $200/month for your flexible expenses. You’ll have to decide whether you use that money to go out to eat, get a haircut, attend a concert, or whatever else you might want to do. If you have money leftover in your envelope, perhaps you can buy something else off of your want list.
Step 7: Dealing with debt
If you have debt that you’re paying off, it probably feels like a huge monkey on your back. Imagine what it would be like to be able to pay it off and say you are debt free (it was an incredible journey for me!). I recommend the snowball method for paying off your debt as quickly as you can. (Some other options are here.)
Paying off debt via the snowball method: List all of your debt payments starting with the one you owe the least amount on. You obviously have to pay your minimum monthly payments on all of these loans, but if you have a little extra money during the month, start by adding it to the payment that you owe the least on. Keep adding to that payment every month you can until you have that loan completely paid off.
Now work your way down – add the minimum payment that you were paying on the first loan to the second so that you’re paying over the minimum and chipping away at the total. Keep on paying that one down with the new amount until it is paid off. Repeat this process until you are debt-free.
Bonus step: Give yourself a break
If budgeting is new to you, you’re probably going to make some mistakes along the way. Don’t let these small mistakes completely derail you. If you do slip up and miss a payment or spend too much eating out or whatever your slip-up might be, give yourself a break. You’re human and you’re not perfect. Take a deep breath and promise yourself you’ll do better next month. You’ve got this!
We’re excited to offer free tools to improve your financial wealth. Send us an email and let us know what you think. And remember the nav.it money app offers you free tools for checking in and managing your money moves.