The following post is a guest post by Mr. CBB from Canadian Budget Binder! Enjoy!
When we first started to use a budget we really didn’t want to commit to such a boring task. Like many, we were used to tracking expenses in our head and checking in on the bank account to see how much money we had left. Looking back it was probably the worst thing we did for our personal finances and I can’t believe we did that.
Budgeting can be overwhelming at first but it doesn’t have to be if you plan it out correctly. No matter what your situation or money mistakes are, or were, a budget is necessary. I don’t care if you don’t think you make enough money or have too many bills and not enough money to budget, you need one. I typically equate this to a business that has a yearly budget so they know what they can and can’t do with the company money. How on earth is a company supposed to sustain themselves if they have no budget? That’s right; they probably would go bankrupt or close shop. Your budget is just as important as a business.
One of the first things I did when I started to blog at Canadian Budget Binder was put together a 10 step budgeting series for the fans. So many people wanted to know how we were saving so much money or what’s our success formula? It’s not really about how much money we were saving. The question should be how we got to the point where we were saving money. The easy answer was with a budget and that’s where I’m going to show you today the steps we took to get from Step 1 to Step 10 and eventually to complete debt freedom. We own our vehicles, have no consumer debt and will be paying our mortgage in full this year. All of this and still over 30 years until retirement (of course we may plan to retire early). The magic happened just from paying attention to our personal finances and spending less than we earn. It also helped that growing up we were savers but the bulk of our money came just in the past 10 years. Not everyone wants to lead a frugal life but it has it’s pros and cons and for us, well worth it.
One of the first steps I talk about in my budgeting series is simply “gathering all the information”. You can’t sit in front of an empty budget spreadsheet or however you will be budgeting (some like the paper pencil method) with no numbers. You need to get all the numbers from your bank accounts, credit cards, lines of credits, bills, whoever you owe, how much you owe, interest rates, due dates, etc. It’s like getting ready to bake a cake. If you don’t have all the ingredients for your recipe how will your cake grow? It won’t. It will sink because all the ingredients (in this case the numbers) are not available.
What is Net and Gross Income?
Net Income in simple terms is the amount of money that you get after all your taxes are paid. So for those that get direct deposit from your employer that is your net. If you are self employed or no taxes are taken off that is NOT your Net Income that is your Gross Income. Don’t get the 2 mixed up or think of it as a fishing Net, what you bring home is what you net.
You can read in more detail each step of our budget and why we did what we did. The budget spreadsheet I designed for our family changed numerous times over the course of the year. A budget will always change and so should yours. You should never just set it and forget it. We are in the process of finalizing and testing our budget spreadsheet so we can post it on the blog for those that want to check it out.
There are a myriad of free budget spreadsheets and free budget programs to track expenses on the internet if you do a Google search. I’m not selling anything here so you need to pick what works for you although I have created a host of free downloadable money saving tools that we use and may help you. If you want to have a binder with pages so you can manually track your budget and expenses, then do it. As long as you know exactly what is going in and out is what’s important. Some people chose to use a cash system and put it in envelopes or jars. If that’s what it will take to motivate you to start budgeting than do it. You will see over time how easy it becomes and you will continue to challenge yourself further each month. We no longer carry cash we use credit cards for rewards. I don’t recommend this unless you are at a stage where you can pay your credit card in full every month.
10 Steps in Designing Our Budget
- Step 1 - Gather all the information - As mentioned above, the first step in designing a budget is to gather all the information. You will need to get all the numbers from your bank accounts, credit cards, lines of credits, bills, whoever you owe, how much you owe, interest rates, due dates, etc.
- Step 2 – Categories - Every person/family is different so you need to decide what categories will suit your budget. You may need daycare so that would be a category.
- Step 3 – Tracking Receipts - This is so important and I can’t stress that enough if you want to know where you are spending your hard earned dollars. Have a plan in place so you save your receipts and input them into your tracking spreadsheet.
- Step 4 – Note Taking - Always make notes so you can backtrack information. Know where the purchase was made, how you paid for it, dates, etc.
- Step 5 – Organization - Keep organized and keep your workstation free from distractions. You may laugh but it works.
- Step 6 – Who Does What and When - If you are in a relationship budgeting doesn’t have to be a one person job. In fact my wife and I both share the budget duties as a team. If in the event something should happen to one of us we both need to know what is happening with our personal finances and so should you. Don’t put the burden on one person.
- Step 7 – Balancing Our Budget - Your balance has to budget each month. If you can’t balance your budget you have to do one of 2 things 1- Make more money 2- Spend less than you earn.
- Step 8 – Knowing Our Coupon Savings - That’s right our Canadian Budget Binder Spreadsheet allows us to track our coupons savings, gift card and discount savings as well. We want to know how much money we are actually saving over the course of the year.
- Step 9 – Reading Our Bills - I can’t tell you enough to make sure you always read your bills and receipts when you are shopping. There have been times when I found errors on my communications bill where they charged us for services we did not get. You may also notice the wrong charge on your grocery bill which could result in a scanning code of practice where you get the item free up to $10 if the store participates. Most of all you catch an error where you were paying more than you should have. So many people get burned by not reading.
- Step 10 – Projected Expenses - This is a big category for us as we save close to $15k a year in it. What is it? In short, it’s an account where we keep money for items that we know we will have to pay for at some point in time during the year that our regular budget won’t be able to handle. We were always taking money from our emergency savings for these items which was wrong. A sticker for our vehicle once a year is not an emergency but should be saved all year long so the money is ready to be used when it comes due. We save $7.50 a month in a separate account for 12 months to pay for the sticker. $90/12 months. This has been the biggest stress reliever for us and one of the biggest reasons people fall off their budget. If you don’t factor in the small stuff, you may not have the money to pay for it. You should budget it in and save it.
I encourage you to take a deep breath if you are wanting to budget but are feeling like there is no end in sight. Start living instead of existing and take back the control of your personal finances. A budget is one step in the process in working towards debt freedom but one that may allow you the opportunity to drop that debt and get back in the game. Time to look at a budget as part of a lifestyle rather than a chore.