If you are just jumping on the 9 Moves Train, you should back up and check out Move #1. If you have finished Move #1, then let's roll on to Move #2.
A budget is for winners. While I agree that a budget isn't in everyone's Top 10 List of Awesome Things to do on a Saturday Night, people who budget do well with money. There is no secret as to why the 76% of Americans who live check to check match up with the 70% of adults who don't rock a monthly budget. Strong correlation there. A budget gives you permission to spend, save, invest, and pay off debt. It takes the guesswork out of finance. Moreover, it is one of the ways you can reduce the 28 hours you spend on average doing finances to something in the 10-15 hour range.
Last fun-fact, 80% of lottery winners lose all of their money within two years. See how it lines up with the 76% statistic? If you don't have a plan, your money will surely go right out the window.
How should you build your budget? Well, if you did Move #1 correctly you already have all of the data needed. I'll give a brief example of how I structure my budget, and then you can build on it from there. You can also check out resources page for budget examples and the like.
- Company #1 - $3,000
- Company #2 - $2,500
Total Net Income: $5,500
- Mortgage - $700
- Cell Phones - $130
- Car Insurance - $130
- Water Bill - $90
- Electric - $75
- Gas (Heat) - $50
- Prescriptions - $25
- Sling - $25
- Netflix - $10
Total Fixed Expenses: $1,235
- Clothing - $100
- My Pocket Money - $50
- Wife's Pocket Money - $100
- Car Repair Fund - $100
Total Variable Expenses: $350
Groceries & Transportation
- Groceries - $500
- Restaurants - $200
- Gas - $300
- Oil Change - $50
Total for Groceries & Transportation: $1,050
- Chase Visa Card, $300/mo ($2,000 Balance)
- Student Loan, $400/mo ($20,000 Balance)
Total Debt Payments: $700
Total Income: $5,500 | Total Expenses: $3,335 | Different: +2,165
Keep in mind, this is just a rough layout of a budget. You may have different categories and the first time you do this, you may have more expenses than income, but we can work with that. One thing that is a budget killer for those who are on a budget is wasting their flex cash.
WHAT IS FLEX CASH?
Flex Cash is a term I use that describes the leftover amount a family or person has after their expenses are paid. Your Flex Cash is what you will use to fund the rest of your Moves. For our example budget here, they have well over $2,000 leftover each month. So they can reach their savings goal for Move #3 in about two months and knock out the rest of their debt in about 12 months. If you're not tracking on the math yet, no worries, that comes in later Moves.
The last part I wanted to touch on for the how is format. How should you keep track of this? Sure, you just saw an example but what tool is good? Classically, I have recommended four tools for people: 3 Free and 1 Paid:
- Every Dollar - Dave Ramsey's budgeting tool. Free basic level, with a $9.99/month upgrade that links your bank account.
- Mint by Intuit - This is Intuit's flagship budgeting tool that is 100% free, links your bank accounts, and helps people organize their finances very well.
- You Need a Budget (YNAB) - A newer tool that hit the market in 2004. YNAB is a crazy-popular budget app that is free for the first 34 days and then $50/year after. It's a good value and a great app.
- Excel Online - Microsoft Excel is available for free, online. They have budgeting templates that are available for free.
You can also rock a paper + pencil. What matters is what works for you. Final note: you will not be perfect the first month, or the second, or the third. This takes practice, but once you start rolling, you will see the benefits.
Once you have developed your budget, you are now free to press forward to Move #3. As an aside, if you need any assistance getting through this Move, reach out via our contact form for help.