-
Budgeting
Budgeting - Put simply, budgeting is essential to wealth building. With a budget and the discipline to stick to the budget, financial comfort is possible, indeed probable. Budgets make extreme wealth accumulation possible. So, how do we budget? First, you need to track expenses so you know what you are spending. About the same time you are starting to track expenses, you need to build a budget.
My budget, for starting out consists of five categories: (1) Income, (2) Debt repayment, (3) Fixed expenses, (4) Future, and (5) Miscellaneous. What goes into each category?
Income, is pretty self-explanatory, This is where you put in all your income. For dancers this is what you bring home from the club. This includes your side money, like OTC and gifts that you can convert to cash. This is your paycheck if you have a payroll job. This is your draw if you work for yourself. (Not your company’s gross income.) This also includes things like tax refunds. Since this is a monthly budget, you can put tax refunds only in the month you get them. Which brings me to another point, do a new budget every month. Some things like paychecks, mortgages, rent,groceries, and debt payments recur every month. Other things vary from month to month, Make your money work for you.
Debt repayment is also self-explanatory. All your debts go here. The ones you are paying on time, the ones you are making the minimum payments on, the ones you are trying to catch up. The ones you are paying off early. Some debts will move from paying on time, to paying off early as you have more income to pay on debts, or debts get paid off. So this category can change some from month to month. I list it as the first expense category because I want it to be front and center in my mind every time I make an entry on the budget spreadsheet. (You can get a good spread sheet at: https://www.kiplinger.com/kiplinger-tools/spending/t007-s001-budgeting-worksheet-a-household-budget-for-today-a/index.php or https://debtfreemillennials.com/google-budget-template-tutorial/. ) I will write in a later post some of my thoughts on debt service and I have already written some on guardrails for incurring debt in earlier posts.
Fixed Expenses. The fixed expense category is one for things that come up every month and are usually the same each month. For example: mortgage or rent, recurring prescriptions, cell phone, cable (I don’t like cable, but hey some people still have it) internet, and utilities. I know utilities can vary from month to month if you are not on a level payment plan, but I still put them in the fixed category. Groceries go here too. I know groceries can vary from month to month, but I still put them in the fixed category as we all need to eat and honestly my grocery bill tends to be about the same every month. I also include cleaning supplies, yard service, heat and air conditioning service service checks. Auto expenses go here, even the ones that can vary some from month to month. For us, we put the boat expenses here because it’s more fun than fixed, they do tend to be fairly fixed expenses.
Future. This is the category for my savings. Things like Roth IRA, IRA, investments, building the emergency fund, building the down payment fund for a new house or car, Saving for vacation and just building up a savings account. Some people put in a gift fund here, knowing that they will give some gifts every year. I put that under miscellaneous, but, future is a good place for it too. How exactly do you set up these funds? My accountant mind says just keep them in checking and account for them in a separate line item. My housewife mind says our credit union doesn’t charge extra no matter how many savings accounts you open, so I have a bunch of savings accounts that each get their due every month. So at the beginning of every month, BF and I put money in each account for each thing that we are saving for in the future. (Yes, I know I’m not married, so technically I cannot have a “housewife” mind, but, I do keep a house, so there.)
Fun. This category is for fun stuff. Clothes, vacations, dining out, movies, shopping trips, mother/daughter trips, father/daughter trips, sex toys, that stuff. Even if you are paying off debt and trying to get out of a real debt hole, you have to have some fun. Sorry Dave Ramsey, even when I was at my worst moments in deep debt in 2008 with no prospect of selling my investment house, I had to have some fun. Also, daughter didn’t make those investment decisions back then, she was only four, she deserved some fun even though BF and I had way too much house and a totally unsellable money pit of an investment house on our hands. Just don’t let the fun category start to cripple your plan to get out of debt.
Miscellaneous. This is the general category things that are not in the above categories. I put gifts, spending money, allowance for daughter, school stuff. (School seems to nickel and dime us with something every month.) I put my hobbies and BF’s hobbies here.
HTH
Z