Several years ago, I might have laughed if you asked whether I had a budget. Back then, I had few financial goals and plenty of money to cover my bills, so why bother with a budget? It pains me to think how much money I wasted back then!
When we got married, we started spending just a bit more every month than we were making. Gradually, our tiny savings account started to dwindle and that worried me. We wanted to change jobs and possibly move, but how could we volunteer for that kind of financial uncertainty if we didn’t have any savings to fall back on?
I remember clearly the day my financial focus changed from “How can we get by?” to “How can we thrive?” I was driving from Montgomery, Alabama, to catch a flight in Atlanta, and I was listening to the radio. I was flipping through AM stations, looking for something interesting to listen to, when I stumbled across Dave Ramsey’s radio show. Dave Ramsey advocates for sound financial management with the ultimate goal being to pay off all debts, including your mortgage. I listened for a while, and his common-sense approach just began to click in my mind. It sounded so simple — and yet so profound. Debt freedom as a goal? Why not!
After cutting our spending drastically, working a few side jobs and pouring everything extra into saving and repaying our debt, I’m proud to say that we’re debt free. It was not easy, but the feeling of that debt sliding off my shoulders is worth it! We didn’t do it the Dave Ramsey way, though. His plan starts with a strict cash budget, but we wanted to keep using our credit cards, which we paid off every month.
That plan got us to our goal, probably because we had sufficient income at the time, but it started to cause us problems when we moved to Kansas. Suddenly, we had a baby, new expenses and a drastically decreased income. My income alone was cut by two thirds. I watched our credit card bills add up each month, not understanding why we couldn’t live within our means. I got frustrated and impatient, sure we were never going to reach our ultimate financial goal (buying some land to homestead).
Finally, we decided to buckle down and force ourselves to use a cash budget system so we could force ourselves to live on one income and put the other income into savings. In the few months we’ve been doing this, we’ve seen a drastic change in our spending. It’s tough to say no, but it’s definitely worth it! Though we have to do without some things we want, we are no longer spending beyond our means, and for us, getting one step closer to our goals makes the sacrifices worth it.
Now that I’ve given you way too much info about why we do what we do, let’s move on to the how.
- Establish a Written Budget. I made a simple Excel spreadsheet with our income at the top and each expense (listed as specifically as possible) underneath. With Excel’s formulas, it’s easy to adjust an income or expense item without having to recalculate the whole budget. For our utilities, we established a balanced billing plan so our bill doesn’t vary widely from month to month, which makes budgeting easier. In addition to specific bills, we have categories for items like groceries, home improvement, entertainment and gift-giving. We also have a “miscellaneous” category for spending on items like a new safety gate for the baby. Importantly, we made a category for spending money for each of us. This gives us the freedom to “blow” a bit of money on things we want without having to think about how that impacts our family budget.
- Create (and use!) Cash Envelopes. Make an envelope for each category and put the cash amount established for that category into the envelope. You don’t need anything fancy — plain white envelopes or the ones from the bank will work just fine. No, you can’t use cash for everything, but you can use it for most things. It’s so much easier to swipe your credit card at the grocery store than it is to dig out your cash, but there’s nothing like the visual reminder of spending cash instead of plastic to keep your spending under strict control. I can see from a quick glance in my envelope whether I have enough left in the budget to buy a certain item this month or whether I have to wait.
- Keep the Credit Card. We still use our credit card for buying gas since it’s just too much trouble to get the baby out to go inside to pay for gas, especially in the winter! But, since that’s the only expense on our credit card, it remains easy to track our spending in that category by checking the credit card balance online. Occasionally, we also need to use our credit card because we can’t use cash to pay for an item, like when we order something online. When we need to use it instead of cash, we simply take the cash out of the envelope for that category, put it in the “bank” envelope and re-deposit it in the bank so the money will be there to put toward the credit card.
- Readjust As Needed. Our budget changes every month based on our anticipated needs for that month. For example, we wanted to hook up our inherited gas stove so we budgeted more money one month for the installation charges, decreasing our other categories to make it work. We also anticipate increasing our home improvement budget this summer when we’ll want to spend more money on our yard.
Certainly, it is not easy to look in my cash envelope at the end of the month and realize I can’t buy something that I think we need, especially if that item is for my family. I remember standing in Walmart at the end of one month, nearly in tears because I didn’t have enough cash to buy tortilla chips for nachos my hubby requested. But, saying no to something teaches me discipline. And, in the end, it’s worth it to see our savings increase as we get a little bit closer to our goals.
Whatever your hand finds to do, do it with all your might… Ecclesiastes 9:10