Write Down Your Budget. Every.Single.Month.
Get ready. This is where I take the ickiness out of the word “budget”.
There are 4 places your money should go while you are getting out of debt.
- Envelope System (More on this topic to come in another wellness tip!)
- Sinking Funds
… in that order.
There are two main components of a working budget (read: not one you do every 6 months as an exercise in futility):
- The Account Register
- The Allocated Spending Plan (also known as a Cash Flow Plan)
We use YNAB for all our budgeting needs. It seamlessly integrates the two components and is extremely user friendly. (Psssst…. Keep an eye out on the GPS blog to enter for your chance to win a full version of YNAB!).
An Allocated Spending Plan is what brought me the biggest sense of peace during our financial journey. I knew, without a doubt, that I’d have money to get my hair cut, because I saw all of our money being spent on paper before we ever hit “send” or stuck the stamp. I knew, when I went to pull out money for my Envelopes, that nothing would bounce as a result.
The gist of an Allocated Spending plan is to write down your income every month, and “spend” it as you go down your prioritized list. When you “spend” it, you subtract the exact amount from your income. Here’s an example for you visual learners:
Mortgage/Rent: $500 / $1,500
Utilities: $100 / $1,400
Groceries: $200/ $1,200
Gas: $100/ $1,100
Now, those are your basic needs. A place to live, lights and heat, food on the table, and a way to get to and from your income source. If you were, as Dave says, “Gazelle Intense”, you’d have $1,100 to send to your debt!
But we weren’t *that* intense.
The trick to sticking with it is to be realistic in your budget. Don’t go gung-ho and give your gas budget less money than it would take you to get to and from work! Don’t give yourself $50 for food, unless you plan on living like a college student. (and don’t drink away your food budget like a college student either! I didn’t buy alcohol until right before I got paid the send time for the month, because I knew I’d be replenishing my food money, so whatever I had leftover was due to good planning).
Next Friday, I’ll be talking about the Envelope System, but in the meantime, check out my other Financial Wellness Tips!