Cheaply Awesome Guides

Cheaply Awesome Guides

Contents

Introduction What is budgeting?

The Concept of Budgeting Forget the FOMO The Practice of Budgeting Step by Step

What are you spending?

Retrospective Spending Tracker

What do you have? What do you owe?

A Word About Debt

1 What do you want?

8

2

Emergency Fund

8

2

"Curveball" Fund

8

2

Retirement

9

2

Future Fund / Specific Goals

9

3 How do you make this work? 10

3

Delayed Gratification

11

4

Do What Works for You

11

5 A Final Word

12

6 Disclaimer

12

7 Appendix

13

Budget Worksheet

14

Resources

17

Introduction

We've done it. We've lived without a budget, and with one. Budgeting helps to keep our "eye on the prize," to ensure we don't overspend, illuminates our spending habits, and helps us be prepared for emergencies.

When we didn't have a budget, an unexpected expense was a hardship (such as a medical bill, a necessary car repair, or even something as small as having to replace a pair of work-appropriate shoes). Without a budget, these types of things would be covered by a credit card, which increased our monthly expenses, and threatened to keep us in a cycle of debt.

With a budget--and we stick to that budget--we have been able to buy a house, become debt free (apart from the mortgage), and even save a little for the future.

We believe everyone should be empowered with financial literacy. There's plenty of free information on the Web and in libraries, and we've included some references at the end of this guide. This document is available for those who want to get started budgeting right away.

Note: This is our guide to budgeting based on our experiences, and implies no guarantees. We encourage you to seek professional financial and legal advice before making any financial decisions.

1

What Is Budgeting?

The Concept of Budgeting

The concept is simple: to know where your money goes, and ensure it's going where you want. It's liberating to know that the bills are paid, and to know exactly how much is left in the bank or in your pocket. Basically, budgeting can empower you to ensure your income is greater than your outgo.

Most people would agree, but (especially in America) it's obvious not everyone is on board with the basic concept.

Forget the FOMO (Fear Of Missing Out)

In the typical American lifestyle, we are constantly pressured to not only keep up with the Joneses, but to rub our bigger, better, faster lifestyle in their faces. It's time to just stop. Don't worry about missing out on possessions or experiences that others have, and certainly don't rush out to buy that stuff. If you've ever done that, you may recall the sick, empty feeling you had after the rush of purchase was over, and that new shiny thing didn't help to quell that feeling, or help you get to sleep at night.

It starts with a mindset. It seems simple, but it can be difficult when your friends are driving new cars, your coworkers have the latest gadgets, and it seems like everyone around you has more and does more.

A consumerist society sends a clear message: the more stuff (and more expensive stuff) you have, the better and more successful a person you are. Even something as seemingly innocuous as a TV ad for a new car is loaded with hidden messages. Messages such as not only should you buy the new, big, shiny car, but you should do it because you want to be like the people in the commercial who did so. They are a happy couple in their late twenties/early thirties, in a big house with luxury finishes, furnished with high quality drapes and furniture, all professionally arranged by a designer. They are wearing high quality clothing, and are fit and good looking. They go outside and the crane shot shows their mansion on a hill with the new vehicle parked in the circle drive. The message is clear: if you want to be just like them, then you should buy this new car.

We call bullshit.

Not only on the messaging that we need to buy new cars (one of the worst financial decisions one can make, in our opinion); but, the messaging that the couple portrayed in the ad were normal, average Americans. They're not, they're actors. And worse, normal, average Americans should want that life...and all the debt that comes with it.

We refuse to be puppets of the American marketing machine, and instead spend our resources on the things that are truly important to us. Join us. Create a realistic budget for your situation, and begin focusing your resources on your own goals, rather that what society and Madison Avenue are projecting.

This guide will take you through the process of knowing exactly what you have, what you owe, defining where you want to be, and devising a plan that supports your own priorities. Once you do, you will have the tools to live your life for yourself by putting your resources toward the things that are important.

The Practice of Budgeting

There's going to be some math, and even a spreadsheet if you're willing (but simple pencil and paper will work just fine). It's going to take some honest examination and reflection. If you are partnered, it's also going to take some negotiation. It will require you to review, adjust, and maintain your budget month after month, year after year. You can do this.

2

Step By Step

A budget is simply a plan. Below are the basic steps to implementing such a plan. We'll continue by expanding on these questions in more detail in the next section, but here's the overview.

1. Track Spending

What are you currently spending? This is probably the most painful part of the process, and the most enlightening. This step is essential in the budgeting process, because it will reveal where your money is going now.

2. Know Your Resources

What do you have? This step defines what you have to work with.

3. Know Your Obligations

What do you owe? In addition to your living expenses, most Americans are in debt. This step will identify what debts you have so you can make a realistic plan to pay them off.

4. Define Your Goals

What do you want? Rather than keeping up with the Joneses, what is it that would fulfill your own needs and desires? If what's important to you has a price tag, this step will help to define spending decisions moving forward.

5. Balance the Income and Outgo

How do you make this work? This is where the difficult decisions happen. If there isn't enough income to cover the cost of what you owe and what you want to achieve, this step is where you decide priorities and timelines.

6. Adjust It

Rinse, repeat. It's not likely that it will work out perfectly the first time. Revisit the resources, goals, and the balancing process until you have a plan that is realistic.

1. What Are You Spending?

This is where we start. You have to know where your money is going.

There are two ways to do this. One method is to track your current spending for a month. Keep every receipt. Take a small notebook with you and write down how you spend your cash. Keep track of everything you spend.

This is an accepted and worthwhile practice, but it can be tempting to procrastinate the budgeting process for a month while collecting receipts. In our experience, it's also easy to get sidetracked before the month is over and lose interest in the project.

Although we recommend you start tracking your spending moving forward, we also strongly encourage you to use the second, retrospective method in order to get started. Review what you've spent the past month. Log in to your bank account and go through each of the transactions. Go through the receipts in the bottom of your bag or on the floorboards of your car (we don't judge). Write down everything you remember, and make an extra effort to think of any times when you spent cash for things. It's not as thorough as the first method, but will get you started sooner, and will keep up your budgeting momentum. We've provided a Retrospective Spending Tracker spreadsheet on our website.

3

Retrospective Spending Tracker

Once you have your bank information and your receipts, write the amounts you've spent into the appropriate columns. We've provided columns for the basic categories. If you see by your spending habits you are spending in areas that aren't represented on the worksheet, use the "Miscellaneous" column. If a category doesn't apply to you, you may pass over it (for example, if you don't have children, you may skip over the child-care column.)

We've defined the basic categories as:

? Savings

?

? Living Expenses

?

? Transportation

?

? Insurance

?

? Child Care

?

Health Care Education Pets Debt Taxes

? Entertainment ? Personal Care ? Miscellaneous

(anything that isn't listed)

Here's an example of a portion of a completed worksheet:

Savings

Living Expenses

Transportation

Insurance

Travel

$100 Rent

$1,200 Car Insurance

$130 Renter's Ins.

$80

Electricity

$75 Oil Change

$25

Gas/Heat

$40 Gas

$80

Cell

$100 Parking

$40

Cable/Internet

$120

Groceries

$500

Coffee/Alcohol

$60

TOTAL: Monthly TOTAL:

$100

TOTAL: $4,831

$2,095

TOTAL:

$275

TOTAL:

$80

There are several more columns that aren't visible here, but you can see that each category has its own total. The sample retroactive spending tracker (available on our website) has the following totals:

Category Savings: Living Expenses: Transportation: Insurance: Childcare: Health: Education: Pets: Debt:

Amount $100.00

$2,095.00 $275.00 $80.00 $0.00 $15.00 $0.00 $95.00 $886.00

4

Category Taxes (n/a ? withheld): Entertainment: Personal Care: Miscellaneous:

Total:

Amount $0.00

$635.00 $630.00 $20.00 $4,831.00

The total expenditures of all categories are $4831 each month. If this person doesn't have an income of at least $4831 each month to cover those expenses, they are likely going into debt, and quickly.

Use the link above for a downloadable spreadsheet, or use a simple pencil and paper. Just be sure to include the categories that apply to you. Once you have tallied all of your expenses in each category, add up the total you've spent for the month. Did you know this was where your money was going each month? Is your spending taking care of your obligations? Are your resources going toward your priorities?

Remember--we recommend that you still track your spending as you go. After the retrospective process is completed, continue to track your spending over the next month. This takes longer (to track spending for the month, it takes a whole month), but it is likely to be more accurate. It also illuminates other expenses you may have omitted in this first round. Basically, it never hurts to be aware of where your money is going, so you can adjust accordingly as you go.

2. What Do You Have?

Now that you know what you've been spending, it's time to review what you make. We're going to start with the Budgeting Worksheet. Naturally, you may write up your own, and there are several other templates online. We encourage you to use what works for you. To help you get started, we've provided a downloadable Budget Spreadsheet on our web page, as well as a copy in the appendix.

Add up all of your income. This can be: Regular salary/wages Irregular wages/tips (make a conservative average) Assistance Other sources

Because irregular or one-time income cannot be relied upon to be the same amount every month, be conservative. This means using a low average (if you average $100-$200 in additional irregular income, go with $100 for the purpose of this budget). If your additional income is so irregular that you cannot count on the same average every quarter, it may make sense to exclude it from this part of the process and deposit such income directly into savings.

Is this total enough to cover what you've been spending? If so, is there enough left over to increase your savings, or put money toward new goals?

If your resources don't cover what you have been spending, it's likely we'll need to make some adjustments. We'll get more into that in step 5.

5

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