The power of budgeting
I don’t know about you, but I was never taught how to budget thoroughly. I learned how to save or say no to spending and thought I was budgeting, but after a few years in business and real estate, I realized I was doing it wrong.
So, with that said, I aim to teach anyone to budget. This is not as complicated as some like to think. You don’t need to avoid this like the plague. Budgeting will change your life. I promise.
What is budgeting? Budgeting is putting your money to work for you. Your goal with budgeting is to know where each dollar is going, and knowing this data will significantly help you reach your financial goals.
You don’t need to create a budget. Your first step is reviewing your current situation and future goals.
Feel free to read my blog post on the first steps in creating a financial plan.
Also, this practice should not make you feel bad about your financial situation. Many struggle with budgeting and debt simply because they’ve never been taught how to manage them. So Let go of the guilt and take small steps together to build a better future for you!
Start looking at your money as a tool. Its value is merely to help you get where you want to be. There is no guilt here. This process enables you to build your goals and plans. So let's avoid feeling bad about anything and ask yourself, “What do I want, and what am I doing to get there?" That’s it. Do you want to save for a fantastic vacation? Let’s do it! Do you want to save for a house? Sweet!! Do you want to save for a miniature horse hobby farm?? ( Wait, that’s me), please do it!
This is YOUR money!! You have the power to save it. Invest it. Grow it and SPEND IT.
Now that you have reviewed your financial situation. You now know where you want to go.
Let’s pick a strategy that fits your goals and how you think about saving and budgeting best.
First step: Figure out your after-tax income. If you have a W2, you can see your take-home pay after taxes, Insurance, or any 401k contributions have been taken out.
Second step: Choose the system that will work best for you. Because I track our income monthly, I already have a solid number history to know where to start each year.
You have a very flexible 50/30/20 budget method. 50% of net pay is for needs, 30% is for wants, and 20% is for savings and debt repayment.
Here’s an example: If you make $3,000 monthly after taxes, $1,500 should go toward necessities, $900 for wants, and $600 for savings and debt paydown.
This method is not detailed enough for me, but it works well for many.
The envelope system, also known as “Cash stuffing”—the envelope budgeting approach—relies on cash and envelopes to plan spending.
This money management system has been around for years, but cash stuffing, or the envelope budgeting method, has gained new life recently, and I am here for it.
The concept is simple: Take a few envelopes, write a specific expense category on each one — like groceries, rent, or student loans — and then put the money you plan to spend on those things into the envelopes.
Cash stuffing doesn’t have to be complicated but requires organization and planning. The three steps below outline how to begin your budgeting journey if this is your proper method.
This method can reduce unnecessary spending because you will use only cash—no credit cards. No Debt.
Next up is the zero-based budgeting method. This is what our family uses personally. It puts every dollar into work. It allows me to track spending, know where we are going, and see if we are meeting goals.
Zero-based budgeting is a method in which you allocate all of your money to expenses for needs and wants, as well as short—and long-term savings and debt payments. The goal is that your income minus your expenditures equals zero by the end of the month.
The difference between zero-based budgeting and living paycheck to paycheck is that all your financial goals are met.
Using the method requires data tracking, which is why I love it. If you don’t track it, how can you grow it? You need to know how you are performing, right?
Calculate net income
track expenses for a few months to give a starting base and see where to stop overspending.
Then categorize your money into rent, utilities, savings, paying off bad debt, vacation fund, emergency fund, and special savings for “what if" situations, such as your dog getting cancer and you need some extra cash to pay for the vet bill or your phone getting smashed.
You can return to the 50/30/20 rule to help allocate your funds first.
The cons of this strategy are that it takes some time to implement, but I am already tracking my business expenses each month, so I do it all in one sitting. I use Stessa and Xero to track our money.
Stessa is more real estate-driven and free with a paid details version, and Xero is accounting software I use to track business expenses. I also now use an app called The Good Budget, which you can read about here.
I LOVE THIS APP. It combines cash stuffing and zero budgeting methods, so I can see a snapshot of our daily finances.
This is enough information for today. I will be back with more tips and tricks!
Lots of love,
Steph
