Does budgeting require you to be good with numbers?
You can actually hate math and be still be really good at budgeting. Why? Because the best way to budget well is by having an organized system. With that, budgeting can be easy and not only help you stay within budget but also really increase your savings.
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The absolute basics of budgeting
Budgeting usually has two main goals. First is to ensure your expenses are less than your income. This produces savings, which is the difference between your income and expenses. Therefore, the second goal of budgeting is to increase your savings.
In fact, you can accomplish this in actually two ways.
1. Find ways to save on expenses, lowering your expenses every month. This will increase the difference between income and expenses, resulting in more savings. However, remember while you should focus some effort here, there is a realistic limit to how much you can save.
Therefore, in this post, I focus on what you should do with that savings to turn it into even more savings.
2. Increase your potential earnings each month. You might not consider this budgeting but in fact, it very much can be. For example, you might want to start a flex job or a stay-at-home job or turn a hobby into a job, all of which have startup costs. By budgeting effectively, you can invest some of those savings to increase your household income.
You also almost always need more time to add a flex job. You can apply the idea of budgeting to time (known as time management), to really increase your free time each day. I promise this is not just for business people but also for moms. For better time management in the household, read how you can remove wasted time from your day.
The first step to budgeting well is knowing your money flow
A lot of times budgeting fails because you don’t account for ALL expenses. This includes all those little purchases here and there. You might not even truly know where you spend your money or how much if you have never tracked it.
If you don’t know where you spend most of your money, then you can’t really start to cut costs effectively. What does this mean? Here are some examples:
You try to cut costs in eating out hoping it will increase savings. If you didn’t track the money flow in your house, you might not know that eating out is only 2% of your expenses. Further, if you tracked money, you might see bigger expenses such as grocery bills and try to decrease that instead to really save a lot.
You might also not know that your daily coffee habit is 10% of your expenses because you pay in cash or just because you never looked into it.
By tracking your money flow in and out of your house, you will get an accurate idea of where the money goes and where you should focus your efforts.
We have made a set of budgeting templates that you can download for free when you subscribe. You can use these templates to track your money flow.
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Here are two ways to track money flow depending on what fits you best
1. Go through your last month and look at credit card statements, bills and receipts. You want to write down each expense and the amount.
2. Pick this upcoming month and every day at the end of the day, add any expenses to your on-going list. Write down the expense and put down the amount. I find the best way to do this is to collect all receipts and then at the end of the day to just add them to my list. This way I never forget to add all of those coffees or little purchases that can really add up.
Put your expenses into categories
After you complete option 1 or 2 from above, now put each expense into a category. Now I know you can get budget sheets that have categories already labeled for you but if you really want to know how you spend your money, you need to pick your own categories.
I have also included a page in the printable so you can say keep track of what type of expenses go into each category. It is a master list of what each category is and what type of expenses go in each category.
For example, in the category “Home Expenses”, you include mortgage/rent, electric, gas, garbage, internet, and water.
Here are some category ideas:
Now you want to total the amount for each category. To do this, I highlight the items in my expenses with different colors based on the category I put them in. Once you total, put those number in the printable called Money Flow results. You then want to get a grand total for all of your expenses.
Once you have categorized and totaled each category, you can clearly see where your money is going. You might be surprised by where you are spending a lot of money.
Pick two to three categories where you want to increase your savings
Where is most of your money going? Looking over the month where you tracked actual spending in various categories, where do you think you could cut costs?
Some categories will be challenging, if not impossible, to change such as medical. You want to pick two or three categories to focus on cutting costs. By simply picking areas where you are going to focus your efforts, you are much more likely to succeed. You won’t feel overwhelmed and you won’t waste your time either.
Tips on where and how to save:
Depending on where you are going to try to save, here are some ideas that are for specific categories or just in general.
1. Don’t be late on bills. Make a master calendar that you will refer to when you make your daily to-do lists. In this calendar, which will be your budgeting/bill calendar, you will pick days that you will pay each bill to ensure they all get paid. Subscribe for the template.
Example: The first Wednesday of ever month, you pay your electric bill or check your payment if you have autopay.
2. DIY what makes sense for your household. Depending on the category, what can you DIY? I have watched a lot of DIY YouTube videos on cutting men’s and kids hair and do all the haircuts in my household.
3. Eliminate waste. I have spent a lot of time minimizing paper products in the kitchen. I got a bunch of fabric napkins off Amazon to remove napkins. Then I always have a small cloth out each day to use instead of a paper towel.
Pro Tip: Get more life out of a sponge by throwing it into the dishwasher.
4. Buy used. While I don’t think you want to buy every type of item from a garage sale, you can seriously find some good deals. I like to grab items such as baskets, organizers, old furniture to fix up and kids toys. I also buy kid clothing from garage sales because kids grow so fast, so the clothing is usually like new.
Pro tip: Use Craigslist to find garage sales in your area. It will be one of the subcategories under for sale.
5. Be efficient. Meal prep planning can save you not only a lot of money but also time. Going to the store with a list and only buying what you need is the best way to save at the grocery store. I have a post dedicated to how to meal plan and prep effectively to make this easier for you.
Continue tracking your monthly stats
You don’t need to do a detailed money flow exercise every month but to ensure you are meeting your goals, it is good to track monthly.
Once you know what you spend in each category, you can set a budget for each category or even individual expenses. Every month, set these budgets and then see how you did. By taking the difference, you can see where you cut costs and saved or where you actually spent more than you planned. There is a monthly budgeting printable in the packet that you can download.
Budgeting as a way of life
While budgeting can seem overwhelming, it doesn’t have to be. It can be game changing because not only will you start to save money, but can also utilize that savings to change your future. Just keeping it simple and organized will really help. Take it one step at a time.
Start with first determining where you are spending your money. Place all those expenses into categories that fit your household.
Focus your efforts in a specific category to reduce bills instead of trying to reduce your overall spending. Then keep track of your spending by using a monthly budget sheet to see if you are reaching your goals.
Remember once you reduce your expenses in one category, take on another. Just don’t take on too much at once.
I have provided all of the printables you need to budget effectively so you can include them in your home binder.
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Dr. Trina Fitzpatrick is a wife, mom, blogger, and a breastfeeding advocate. She is the co-author of the Week-by-Week Bump Smart Course, the Nesting Planner and the Breastfeeding Handbook. She attributes her success at breastfeeding her own children into toddlerhood with working with lactation consultants in the hospital in the early stages and on a weekly basis afterwards. By writing at MomSmartNotHard, she educates mamas-to-be on all things pregnancy, birth and breastfeeding. Read more about Trina.