Budgeting Part 2 of 3: How To Start Budgeting

BUDGETING 101: for people who hate budgeting PART 2/3:

How to get started

Congratulations! You’ve realized you need a budget. That is the first step towards being in control of your finances, and half of the battle! The next step is getting started with a budget. The sooner you can get started, and make progress, the more likely you are to stick to it and succeed. So, let’s do this!

The majority of the advice out there approaches budgeting with expenses and tools. I have a different approach: First, take a breath. Innnnnn and ouuuut. Then, we begin with your income.

The easiest way to stay in control of your budget is to never have money show up in your “spending” account. Having a big chunk of money in your account is too tempting. Right after you get paid, it’s natural to think, “I work I hard, I deserve _________.”

fund your goals

with automatic payroll deductions

  1. 401k - start with 5% of income or max out a company match. For every $100k, that is $208/paycheck. You wont miss it, but over a career, your future self will be pleased.

  2. Health Savings Account - look at last year’s out of pocket spending, set it there.

  3. Dependent care savings plan - what is your kids’ day/after care expenses? You are already spending it!!

set it and forget it

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Don’t be average:

The average American has 3.1 credit cards with an overall outstanding balance of $6,354.

Credit Card Usage and Statistics 2019

set yourself up for success with online bill pay

Ok, so you funded some of your goals, but now your paycheck is in your account, and you are feeling flush! Set yourself up for budgeting success by going to your online bill pay and setting up automatic payments immediately after every paycheck .

Schedule automatic monthly payments for:

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If you are self employed

Set up a SEP IRA and have money automatically contributed to your SEP IRA account.

  1. Your non-discretionary bills immediately and make it a set amount each month.
    We pay GA Power $200 every month. During the winter we build up a nice cash reserve, during the summer we spend it down. The opposite happens with the gas bill. I also like to round up to the nearest hundred on my mortgage, with the extra going to principal.

  2. Pay off your damned credit cards! Start with the one with the smallest payoff and allocate all but the minimum amounts for the others.

  3. Transfer money into a savings account for a rainy day fund.

  4. Fund your short term goals: Transfer money into a vacation savings — or other short-term goal like a new car or house renovation project.

  5. IRA or a brokerage account and the kids 529’s - if you are doing nothing, make it $100. Increment in. As you get comfortable, increase it.

The goal here is to fund your goals, and never even think about the money “leaving” your account, because it never really “enters” your account.
— Josh Chamberlain
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Don’t EVER give your bank account info to a company to take out auto payments.

You need to control the movement of your money.

Discretionary Spending

Take a moment to recognize the work you’ve done: You set up automatic payments for your non-discretionary bills AND your goals are being taken care of. That is a huge step. Nice work! What will remain in your account, is THE ONLY CASH you have left to spend on discretionary items. That means, you make a promise to yourself: NO CREDIT CARDS when you run out of money at the end of the month.

Advice on credit cards

Credit cards are bad. This is worth repeating: NO CREDIT CARDS. That means, you make a promise to yourself:

DEAR SELF:

NO, I MEAN NONE , NOTHING, NADA GOES ONTO A CREDIT CARD, not even to earn miles for the trip I’m not going to take in the indeterminent future. And if I do take the trip, it will likely be during a blackout dates and I won’t be able to use those elusive “rewards” anyway.

Yours Truly, (really I’m yours… am I getting too meta?)

Me.

Budgeting FAQs

q. I get paid twice a month, I can’t afford to pay all of my bills at once! How will i be able to afford to eat or live reasonably until my second pay check?

or

q. My bills are spread throughout the entire month how do I manage not getting late fees?

A. Both of these questions have the same answer: Spread your non-discretionary bills across your two paychecks. What that may mean is, the majority of your bill paying in your first pay check, goes to the mortgage (and maybe a few utility bills). Leave yourself enough left over, so that you can buy gas and groceries until the next paycheck. On your next paycheck, finish off the utilities and your savings for goals. Leave just enough for your discretionary spending, to make it to your next paycheck.

q. what if one of my big utility bills (e.g. my car loan), needs to wait until the second paycheck, but is due on the 8th of the month, and will thus be late?

A. Most of the time, if you are up to date on your bills, a company can work with you to change the due date, give them a call. If they won’t, make a minimum payment on your first paycheck, and then finish the payment on the second paycheck.

q. Why autopay the same amount each month?

  1. You want to set up your payments on autopay, and don’t want to wait on the bill.

  2. You don’t want to worry about any accidental underpayments.

  3. Over the course of the year, the payments will average out.

Q. Josh, by the end of the month, I either don’t have any money left over, or worse, I am spending on my credit card to make ends meet!! This method sucks, what gives?!

A. Good question… the answer to this is in Budgeting Part 3


Not sure if a budget is for you? Take my free assessment: