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When I started my financial journey I thought all I needed was a budget and the financial common sense that I was learning. But this was only what I needed to get started. I was able to create a budget and by sheer force stick to it. Not everyone can do that, my spouse included. He needed a better reason to get out of debt then because I said some old guy told me there is a better way. Of course I was 10 steps ahead of him, reading everything I could, looking at our numbers and running our future numbers.

This was the beginning of the financial rabbit hole we still find ourselves in. The vast amount of knowledge there is about how you can run your personal finances is overwhelming to think of. But what were the steps that we took to get to the place of freedom we are now? That’s why I am laying out all the options in 5 simple steps.

1. Set goals and know your WHY.

I will keep repeating myself over and over again. DO THE PREP WORK. If you just jump into creating a budget you are not setting yourself up to be successful with it. When you overspend, fall off track, or even “fail” at budgeting you need to be able to turn back to your why and your goals to get your through because budgeting is not easy. It takes time to find out what will work best for you. It takes time to know what is coming up each month in order to account for it. It takes energy that you would rather spend elsewhere. But, when you remember the end goals you are more likely to stick to the plan.

Ask yourself:

“Why am I doing this?”

“What do I want out of my life?”

“What do I want to accomplish?”

“Who do I want to be?

It is not enough to say “I want to be debt-free,” you need to dig deeper into the root causes of your desires.

“I want to be debt free so that I can leave my job if I want to.”

“I want to be debt free so that I never have to stress about living paycheck to paycheck ever again.

“I want to be debt free so that I can pursue my dreams without worrying about whether I can afford my expenses.”

Whatever your reasons are, find them. Do the work to uncover them. Then move to the next step.

2. Know your values.

Just like knowing your WHY and setting your goals, knowing your values needs to be done before you create your budget. This might seem like a trivial process. But, again when you are stuck between a rock and a hard place when doing your budget you will be thankful that you can filter your spending through your values.

What does it mean to know your values? it is as simple as finding the words or phrases that you want to embody in your life and how you handle your money. These could be happiness, kindness, freedom or success, charity, marriage. No combination is wrong. Your values are unique to you, they represent the stage of life you are in, and what is most important to you.

How to integrate your values into your budget? Simply. When you go over your budget ask yourself, “Does the spending align with your values?” No one can answer this question for you, you have to answer it for yourself. The only person who can determine if each expense add value to your life, or if they don’t. the first time you do this it might feel weird. But as you go on continuing to budget and spend money, which is life. It will become easier and a habit that you won’t necessarily have to think about even when you are doing it.

3. Do an inventory.

Taking inventory should be done in all aspects of your life financial, mental, physical, emotional, social, spiritual, environmental, intellectual, and occupational. This is deeper than we are going today although, each of these should be gone through on a regular basis.

What I am talking about is asking yourself, “What do I have, what do I need, and what do I not need?” For many, this is where they think I am going to take away all their little extras, gym memberships, shopping, personal care, etc. I’M NOT, so just keep reading.

At this point, it is just a question. A question you need to ask yourself and answer truthfully. Answer from within then walk around your home and ask the same questions. If you believe that everything you have you need and there is no room for getting rid of anything ask yourself, do you wear everything in your closet, use every utensil you have in your kitchen, is there something in your garage that is collecting dust? See, there is room to let something go and still have a happy and content life.

Next, we are going to do the same but with your money. What do you spend? You are going to list all of your income and list all of your expenses. You will do this for one year of expenses. First, list fixed expenses including mortgage, insurances, utilities, childcare, cell phones, subscriptions, memberships, charities etc. Second, list flexible expenses this includes groceries, fuel, car maintenance, entertainment, holidays, medical expenses, vacation, etc. Third, list your savings, including 401K, IRA, stocks, bonds, mutual funds, emergency fund, etc. Lastly, list out your debts, this includes cars, credit cards, student loans, personal loans, items that are financed, personal loans, HELOC’s, second mortgages, etc.

Make sure you are as accurate with your spending that you can be. Many people underestimate some categories and overestimate others. This list is just for your information, it is not your budget.

This is the most exhausting step, combing through your finances. But, now you know.

4. Make a sustainable budget.

Most people don’t enjoy the work that goes into starting a budget, it can feel restrictive, overwhelming, no fun, or boring. While the work of starting to budget might not be fun per-say. I believe that if you can get through that you can get to the joy of having a budget that gives you the freedom you want with your money while working towards your goals.

The things you need to figure out before you start are how do you want to track your budget and when do you want to track it? You can use paper, planners, apps, or spreadsheets as ways to track your money. As for when you should be doing it I would say in the moment or at least once a day to start. I know that sounds like a lot of work but it pays off when you’ve built the reflex/habit.

After you decide on how you are going to track your budget, start. Begin. NOW.

Start with what you make. How much do you bring home each month? Next, look at the last month of spending to get an idea of how much you spend in each category. If in the last step you used real numbers divide them by 12 to get your monthly average. In categories that you don’t spend in regularly and start saving for them. Account for everything you spend on (even if you don’t want to track every penny you have to do it once to figure out how much you will need in your buckets). You don’t want to be caught with your pants down at the end of the month.

Write it all down. Every expense.

Next, we will add in your savings. Whether it be an emergency fund or your 401k lets give you credit for saving. Examples of other types of savings are IRAs, stocks, bonds, mutual funds, college savings, etc.

The last part of the budget is if you have debts you will need to list them out. Some good information I like to have readily available is what they are, who they are with, how much the monthly payment is, how much the balance is, and what the interest rate is. This information is nice to have in one place to reference as needed. Different types of debt that people acquire include cars, credit cards, student loans, personal loans, items that are financed, personal loans, HELOC’s, second mortgages, etc.

From here you need to set your priorities. What do you want to do with your money?

Each person is unique in the way that they want to budget. There are so many options of budgeting styles. Budgets can be very simple, bare-bones to complex and detailed. No method is better than the other, you just have to find the right one for you. Some example of budget styles include:

  • Traditional
  • 50/30/20 (essentials/discretionary/savings)
  • Zero-based
  • Cash only
  • Anti-budget
  • Money Flow/Set it and forget it
  • Buckets
  • Saving first

Lastly, know that as you start your budget you will hit roadblocks and detours, you will need to reroute, and possibly start over. Budgeting takes time to get good at. Some say it takes three months to get good at budgeting. I gave myself a year to feel like I should be able to predict my budget expenses. While I’d say I am good at budgeting I would also say I have my moments of sucking at budgeting. It’s all just a learning experience and you need to remember to give yourself grace when working on yours.

After you have completed your budget you will review it. Revise it for the next month and repeat the same process with the improvements you have learned. This is a constant process that has to be revisited to make sure your money is in line with your goals, values and priorities.

Doing these steps will set you up to feel confident and in control of your money.

5. Continuing education.

Just when you think you’ve learned enough to get you through budgeting, I am here to tell you that you are never done. Just like with nursing you should be a constant learner when it comes to your finances. There is so much to know and it doesn’t stop with these basics.

There are so many things you can learn, just to scrape the surface here are a few: contentment, happiness, money mindset, money scripts, money habits, who are you working for, what are you working for, retirement options, retirement plans, tax optimization, investment strategies, and soooo much more.

Continue to follow my blog posts to learn more with me.