Freedom, in any case, is only possible by constantly struggling for it. – Albert Einstein
Welcome to another entry in my Frugal Grit series. In case you are new here, this series is full of tactics I personally use to optimize my income. No Speculation here. You will only find experiments and lessons learned from the ground level. For today’s discussion, we are going to chat about behavior control in the form of a budget. Keep in mind, this topic category is not for the faint of heart. I never said doing hard things would be easy. Here’s your warning, doing hard things, is, you got it, hard. But it’s rewarding and in this case, liberating.
A few months ago I made a financial independence creed. And the very first bullet point I recommended was one should create a budget. Today, I am going to share with you how to create a budget on a rudimentary level.
A little context
Many people tell me that I am so fortunate to have found such a great wife. They even go so far as to say, I’m lucky. Well, I am here to tell you, luck had nothing to do with it. Yes, I am truly blessed to have my wife. But part of what makes the relationship great is our commitment towards working together as a single cohesive unit. Denial of self is a common exercise in my house if the personal desires risk the peace of the union. Matthew 6:21 states, “For where your treasure is, there your heart will be also.” And regardless of what you believe, that is a true statement right there, I don’t care who you are!
Here’s the thing, you buy what you care about and the chances are, you don’t have a darn clue what your game plan is, or where you stand if you don’t have a budget. But even worse, you are destined to fight with your partner over finances if you two cannot work together. The feeling of two people working towards the well being of the family is just about the best thing I can think of in terms of strengthening a marriage and reducing the chances of fighting, divorce, foster care the list goes on…
That is the power of this tool. It forces two different minds to stop what they are doing and review their game plan. (And in some cases, actually have a game plan). Whether you are single or married, taking the time to measure and assess your direction every month will give you traction in life. To repackage a famous quote, “What gets measured, gets improved.”
Now, a budget won’t magically increase your income. But the fact-based nature will shine light on the lack of funding ahead of time, thus saving pain. Having this foresight will facilitate proactive insightful adjustments. Example,
- Do you need an additional job?
- Is it time to sell things, perhaps cable TV is too expensive, etc.
- Am I going to have a financial hangover at the end of the month?
Personally, this insight made me say “no” to a lot of things in my life that, it turns out, I didn’t need at all. On the other side, once I started to see traction on my budget, the tool became liberating because it showed me what was capable since I knew what I could actually afford. For instance, the budget was the roadmap for how I paid cash for my home. Once I knew how much I could save every month, I was able to calculate the funds needed and then pay cash for my $100,000 home. (I ended up spending $109,000 but you get the point).
A few warnings
Be diligent with every penny on your budget. Don’t automate all recurring expenses simply because it’s easy to use the same budget template every month. Perhaps you can find things to eliminate or temporarily sacrifice while you go all in on a financial goal.
For a budgeting tool, use whatever works best for you. But you can’t go wrong with a basic spreadsheet to start. The goal here is to actually use the budget as a blueprint for your financial behavior.
A Budget Template is also available on my website: https://saysjoeygraziano.com/budget-template/
A budget doesn’t need to be super complicated. And if you start to become intimidated by all the pretty formulas on all the available spreadsheet templates, stop. It would probably be a good idea to work the process manually for a while. Once you start to understand your rhythm with financial self-control, you can always introduce automation down the line. Figure 1 is a simple list. Create this list at the beginning of each month and plan out all your expenses.
Figure 1 Simple Budget list
Yep. A budget can be a simple list in a hierarchical order of your priorities. All you need to do is add each transaction to the proper category with the “actual” amount spent.
Sometimes your expenses will go over the planned amount, so the “Difference” column will help guide you on how to manage the variable. For instance, let’s say you had a particularly cold winter and your heating bill was $50.00 higher than planned. This will render you a negative -$50.00 in the difference column under the Utilities line item. What do we do?
Well, depending on how much funding you allocated to the “Play Money” line item you could take the money from that category to make up for the difference.
See Figure 2.
Sadly, I’ve had many circumstances in the past where I already spent the “play” money and didn’t have enough funds to cover the unexpected expenses. Owning up to your debts are important, but I’d recommend putting food and shelter above other debts if you have to choose one or the other. Prioritize your list to ensure you can at least buy food and shelter.
A few cautions: When you’re starting out with a budget for the first time, don’t be discouraged if you goof it all up. Life is always changing and you must adjust accordingly. In the words of president Eisenhower, “Respect the plan but don’t idolize the plans”. In other words, be flexible.
I personally like to update the budget with all my transactions once a week. But some people do it daily or bi-weekly. It’s your call. If you are married or share your income with another person, it’d be advantageous to show your partner why you want to create a budget prior to introducing the radical concepts shown on my site. I made a huge mistake when I first started dating my wife. She was just a part-time college student barely making enough to pay rent and groceries. Meanwhile, I was fired up about working a million hours a week and knowing where every single penny went. I was so militant in my religious practice of grooming my budget, I came across as too aggressive. Somehow, she was patient with my aggressiveness. Also, you may discover, you don’t have enough money to survive. Don’t worry. The posts on this site demonstrate how certain behaviors and or lifestyle changes can add money to your bank account as a consequence.
If you can commit to a budget, you can then create a timeline and predict when you will have enough money to pay cash for a home or any financial goal for that matter. This timeline helped me stay motivated because it showed me the light at the end of the tunnel.
Let’s add a visual to my specific reward. Using the process in Figure 3, if I could save $1500 per month, I would be able to buy a $100,000 home in a little after 5 and a half years (1500 * 70 months). The chart is just math.
Please don’t get caught up on my home purchase use-case. That was my milestone. You have to ask yourself and determine, what goal do you have in mind? What is it that you feel is worth the sacrifice?
A brilliant quote fromstates, “He who has a why to live for can bear almost any how.” And I can attest, having a clear measurable goal motivated me to boost my income by making sacrifices in the form of lifestyle changes. In other words, I had a purpose driven goal rather than a wishful thought.
I hope this post helps you as much as it has helped me.
Please comment if there is an area that needs clarity. I am always happy to help. Also, if this post helped you, please share the good news as a way of paying it forward.