9 Steps for Making a Budget

Are you starting from scratch?

If you’re anything like me, you have a vague idea of what you spend every month, your “budget”. You don’t know exactly where all your money is going, but you generally spend less than you earn. Splurges happen! Impulse buys are fun, especially when you’re feeling down and need a pick-me-up. Cute little stores call your name with windows displaying the perfect soft comfy tee, a mug with an inspirational saying, or understated casual yet elegant gold earrings. You long for the day when you don’t have that nagging anxiety in the back of your mind about one day getting serious about paying down that student loan debt. Budget? What budget! Maybe there’s credit card debt, a car loan, a mortgage… Argh, so stressful! What to do? If you’re anything like me, you know the perfect way to relieve stress is to go walking down Abbott Kinney Boulevard with a girlfriend, splurge on lunch at Gjelina Take Away, and wander in the stores to window 😉 shop… Which could turn into a $25-$125 “beautiful” afternoon!

Visualize the future!

Fast forward to now. I have my budget clearly stated on an excel spreadsheet. I know exactly where my money is going. I’ve allocated extra to my student loans every month, and I know that it will take exactly 3 years and 3 months to pay it all off, as long as I keep up with these extra payments. I know what I need to put aside every month to afford the trips I have planned for later this year. My bank automatically moves money from my checking account to an online high-yield-savings account to prepare for yearly expenses such as paying for my physical therapy license, my tax preparer, and my contact lenses. I am happier and less stressed, and now that I know the true value of my money. No more retail therapy!

How do you do it? 9 Steps to Making a Budget

1. Clarity

You must get clear on everything you spend every month. Everything from the regular, fixed expenses like rent, phone, and insurance- to the variable and hard-to-estimate things like evenings out, gifts, car repairs. In this first step, track everything you spend for a month. There are various apps out there that can help with this. It’s ok if you don’t have the exact numbers for the variable items, but at least having a category for them will help you.

2. Know your debt

Then get clear on what you owe. Make a chart with all the debt. Credit cards, student loans, whatever. Include these things: Amount owed, minimum monthly payment, interest rate, estimated pay-off date at current rate of paying off.

3. Look at it

Look at all your monthly expenses and your monthly minimum payments. Think about what you want to do in the future. Decide if you want to go forward with this now. It’s going to take some effort, and there will be mistakes made along the way. It’s important to be fully on board with yourself in order to stay the course. If you’re inclined to keep going as is, it’s totally ok. It’s up to you. So make the decision!

4. Pare down

See what monthly expenses you could do without. See where you can spend less but maintain your quality of life, then see where you can whittle it down even more. If you’re too harsh, it won’t be sustainable. It’s up to you if you want to feel the burn or not. Some people like to make it a challenge, and it’s not a challenge if it isn’t difficult! Remember, you can change your mind at any time! It is Netflix you can do without? Bi-monthly mani-pedis? Maybe you could eat out once a week instead of twice. Pack a lunch instead of buying a sandwich.

5. Decide how much extra you can pay towards your minimums

From your pared down expenses, you will use the extra money to pay more towards the minimum of one debt at a time.

6. Organize your debt

Organize your debt in order according to how you will pay it off. There are several methods, and you can choose whatever works for you. The “Snowball” method is to organize your debts according to amount. Pay off the smallest amount first, then roll the payments over and apply those to the next debt, when that one is paid off, apply that payment to the next debt, and so on. You’ll gradually apply a larger and larger amount to each debt and the speed at which these debts get demolished is extremely satisfying! Another method is the “Avalanche,” where you do basically the same thing but pay off the debt with the highest interest rate first. There is no penalty for mixing these two methods either- focus on one debt at a time, do whatever it takes to keep paying more than the minimums, and slowly but surely, your debts will disappear. I use a tool to help me decide which method will work best. It forecasts exactly how long it will take to pay down each debt. It’s $10 on etsy.

7. Automate

It’s much easier to pay stuff if you don’t have to think about it! If you can’t automate it, set an alarm on your calendar to remind you to do it. I find that paying manually actually makes me feel much more in control and excited about my progress when I press that “send” button! I can’t wait to see the balance go down!

8. Live by your plan

This is your life. If you want to be debt-free, you’ll have to live within your means. Get to know what that means for you, and how to enjoy life without desiring what others have. There will always be someone with just slightly more than you- learn to be ok with that. Enjoy what you have. Just by being born in a country where you have access to unlimited credit means you have more than 90% of people in the world. If you have running water, a roof over your head, and a bed to sleep in, you have it made.

9. Let me know how you’re doing!

I’ve found my greatest inspiration from other people who are also on this path. If you’re on this path as well, I’d love to connect and hear your story. Please leave a comment below! It’s always better when we’re together. 🙂

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