Beginner Budget Basics
When it comes to bills, it seems as if they are never ending. JD and I made some financial mistakes early on in our marriage which set us back. I have felt like we were constantly trying to catch up and I am just OVER IT! We have used NeoBudget for quite some time but just over the last year we have really started to dive in. Before using any type of budgeting system you must get all of your ducks in a row so it is successful! I’ve outline these *Beginner Budget Basics* to help you start saving more and spending less!
Step #1 – Determine your monthly income.
Don’t roll your eyes at this one! When creating a budget you really have to allocate EVERY PENNY. “But what if my check/my spouse’s check is different each month?” JD’s check can vary depending on overtime, on call, or even bonus payments but we always base our budget on the MINIMUM amount. Anything extra – goes to savings or extra towards a bill. Personally, I say put it in savings to build the cushion in the event something goes wrong. Also account for any extra money you bring in REGULARLY.
Monthly Income Example
Wife Paycheck – $2,000
Husband Paycheck – $2500
Side Job – $250
Step #2 – Make a list of required (non-discretionary) monthly bills/expenses.
Honestly this is probably my least favorite step. Seeing how much money we MUST pay out each month helps with the next steps of setting other spending goals. Make sure you list each thing that has a deadline each month; cell phone, car insurance; electricity; internet; Visa credit card; mortgage/rent; car; tithe; etc. Our water and electric bill vary each month but I try to write down something that is typical. Do not list things like gas, groceries, eating out, etc in this list. Be specific; if you have several credit cards separate them out and don’t lump them together.
Step #3 – Determine your discretionary income and decide spending limits on remaining expenses.
If your income is $4,000 and your non-discretionary expenses total $3000 then you only have $1000 left over to spend the rest of the month. You will have to divide this between your remaining expenses – gas, groceries, savings, fun money, etc. JD and I usually try to save half of whatever is remaining and then divvy up the rest. Sometimes is not feasible to save half – but set a goal of how much you want to save FIRST and look at other areas you can cut back. DO NOT forget to save for things like vacation, Christmas, etc – those things will sneak up on you before you know it.
Step #4 – Decide where to cut back and set realistic goals.
When setting up a budget most people feel overwhelmed. Generally this is because you have never looked at your debt/expenses in comparison to your income. At first you may want to cut everything – “SPEND NOTHING ON EATING OUT, WE WILL NEVER EAT OUT AGAIN!” I am pretty sure I made that statement after realizing we spent over 200$ a month on eating out – UGH! But, cutting that out completely on month 1 was just not realistic. Cutting back, yes. We made a goal to reduce our eating out to every other weekend. This did not interfere with our giving, saving, bills so it was still a realistic goal.
Budgeting is NOT about never spending money again. Budgeting IS about allocating your money and tracking where it goes in order to give more, save more, and spend less.
NeoBudget – What it Looks Like & How it Works
Neobudget is a total game-changer when it comes to budgeting. The software follows the envelopes system that Dave Ramsey speaks very highly of in terms of financial planning. You initially set up your account and create envelopes for all of your expenses and savings. You can also create more than one account in the event you have several. Once your envelopes are ready you input your BEGINNING BANK BALANCE. Disperse this among the envelopes and then set up future income and budget it out between the envelopes. This can take some planning if you get paid multiple times a month. You will need to determine which bills are due towards the beginning of the month and fund those with your second check (on the 30th). and then fund the remaining bills with your first check (on the 15th). [This is just one example because you may be paid once a month or maybe every other week. You will have to allocate as to what fits your income schedule].
Here are a few screenshots showcasing what all NeoBudget can do for you. You are able to upload your bank statement and allocate the charges OR you can manually enter them. Honestly, it is much better to manually enter them because it holds you accountable. There are other more expensive options that draw in your bank account charges but I have been completely satisfied with doing them myself.
They also have an app! It updates in real time so if you and your partner both download the app to use throughout the day you will know what is left in each envelope. If you “overdraw”, the amount will be in red which is easy for your eye to catch. Another feature is the different color envelopes. All of our *mandatory* bills are in red, savings is green, debt is orange, and other spending is yellow. You can set it up however you like and helps you distinguish between different categories.
The only possible drawback for this is if you pay everything on a credit card and then pay that off at the end of the month. My suggestion would be to continue that method and deduct expenses from the envelopes and then pay the credit card off at the end of each month. You would just have to be EXTRA cautious and be sure you are not overdrawing the envelopes. It can be overwhelming at first but I am more than happy to help you get started!
Stay tuned for my post on how we are paying off one bill at a time using the Avalanche Debt Payoff Method. We are down one bill already and on to the next! We are aiming to pay off our minor debt to move towards paying off our house and school loans!
What budget tips would you offer to beginners?