Always Start at the Beginning

Ahhhh!!!!!!   Budget!!!!!!

Ok, so you actually returned to the blog despite my best efforts to scare you away with intimidating monetarily-responsible rhetoric.  Good!  This week we will discuss the first important steps to setting up your budget and beginning to track your spending with purpose.  So, where should we begin?  Well, first you should scrimp each single cent and avoid frivolous spending at every juncture.  Forget that anniversary dinner you were planning.  Does your wife desire a new outfit for that wedding next month?  No way!  You want to take that hunting trip with the guys?  Sorry.  No more toys for the kids and you might as well cancel that tuition check for your 4-year-old’s pre-school.  Now you’re budgeting for real, right?!?  Well, not exactly.  Going gung-ho is a great way to tackle goals, but unless you know what you’re working with, all that extreme effort will just lead to burnout and frustration.  So, let’s start from the beginning.

1. Income- How much are you currently bringing in?  Take a look at the paycheck (or e-receipt) your employer gives you for all your hard labor.  You’ll want to take account of important details like: 1) how often are you paid?, 2) what is your gross salary and what is your net salary?, 3) are you currently paying any expenses pre-tax (medical insurance, 401k contributions, etc.)?  These details will help you in the next step of placing your income and expenses in categories.  For now, you’ll want to understand how much you are getting paid and when so that you can use this information in the budgeting phase.  
2. Track Your Current Spending-You don’t know where you can save (or where you are underspending) unless you understand your checkbook.  Kyle, what’s a checkbook?  Is that a physics term used to describe the electric attraction between hydrogen particles?  No, in fact, it is a paper booklet that your bank actually gives you for free to write down everything that you spend and deposit into your account.  So, the first part of your assignment over the next month is to start writing down everything that you spend.   

Keep your receipts for your purchases, write them in your checkbook (or use free budgeting software such as Mint, BudgePulse, ClearCheckBook, or Yodlee), and begin to throw things in categories.  I must confess that this is one of my favorite parts of budgeting.  Something about neat little rows and order.  Yeah, God made me this way, so don’t judge!  Thankfully, there are helps out there for people who don’t share my affinity for alignment and appropriate labels.  Two of my favorite spending plan calculators come from Dave Ramsey and Crown Financial.  They’ll give an idea of how to categorize your expenses initially while you track through the first month.   

This could be an intense period of personal reflection.  You may learn that you currently spend $150 a week on eating out.  Maybe you own a 5% stock in the local satellite provider because of the cable package you’re subscribing to.  Don’t worry!  The purpose of this exercise is not to change or fix anything, but rather to learn.  For instance, when George Hutchison conducted our pre-marriage money session, my wife learned that I couldn’t remember the last time I purchased new clothes, using the “does it have a visible hole” test to determine my wardrobe.  Let’s just say she didn’t have the same experience with her clothing category spending history.  The best way to gauge your pre-budget spending is to be honest and do your best to get every expense into an appropriate section. 

Stay tuned next month where we will take all that crazy work you did and put it to real use, setting up an initial budget and devising a plan for the future.