How does your garden grow?

In the world of gardening you need to weed. It’s only through weeding that your flowers will have the space to bloom. In our little world of home finance the weeding is the budget. A budget isn’t a static unchanging document. It doesn’t even have to be a document. Like weeding it does take time and diligence but the reward is the same. You get to admire the result of your handiwork. Instead of flowers you’ll see your savings grow and debt decrease.

I’m guessing you’ve made a budget. Though at it’s core a budget is a simple thing  It can feel like a big project and can be a major hurdle that needs to be overcome. Though I’m fairly open to a variety of ideas I strongly believe that you need to build a budget. Even if you don’t use it often, I think the act of creating it makes you more aware of your spending.

Step 1:What’s past is prologue

A few years ago I put in the work and did the type of budget that forces you to really assess your spending. I looked at how much I was spending and catergorized my purchases and payments for the previous 6 months, a Gail Vaz-Oxlade tip that I love and hate. Somehow, my little bits here and there ended up being an average of $500 of overspending per month. Talk about eye opening!

That exercise was time consuming and depressing but it did allow me to get a better idea of what I was spending in each category per month. Turns out my original idea of budgeting $100/month for groceries would have been woefully low and I would have spent every month feeling poorly about myself. Using that work I created a much better budget than if I had just guessed at what I thought was an appropriate amount.

If you haven’t built a budget in a long time or aren’t sure where your money is going I highly recommend this step. Though this was an informative project and really allowed me to build a fantastic and realistic budget I have been terrified of doing it again. Instead, when I fall off the wagon I begin tracking my transactions monthly.

Step 2: It starts now!

Maybe you know where you spend or the very thought of doing the above work sends you into a tailspin. That’s okay. We’ll start with today.

The first thing you need to assess is how much money do you have coming in. I’m fortunate that I’ve got a consistent wage so I know what I’m getting each month. If you’re not in that boat select the lowest amount that you’ll bring in a month.

Next comes my fixed expenses. A fixed expense is exactly what it sounds like – a number that doesn’t change. I’ve got a few items that I get billed for quarterly or even annually so I (try) to divide these over the months and stick them here.

I also stick my savings and debt repayment in my fixed expenses area. This way I’m guaranteeing that I’m paying those lines.

Then my variable expenses. This is where it gets tricky for me. How much should I allot for groceries? I entertain a lot, should that be under groceries? How detailed should I get? This is all personal so there is no right or wrong as it’s based on your lifestyle. Do you love shoes or video games? You can give them up or you can budget for them. I believe that the things that matter to you should be included in your life. Though I respect people who don’t spend for a few years to get a large savings or pay off huge debts I know that scrimping doesn’t work for me. Therefore, I’ve got a fashion line in my budget as well as entertainment and eating out.

Now you’ve got your fixed and variable expenses and need to do math. It’s a really simple formula: income – (fixed expenses+variable expenses).

The aim is to have a $0 budget.

Step 3: Playing with numbers

Did you get $0? I rarely get $0 because I know that I may spend more certain months so I give myself big numbers and have to cutback. This is where Step 1 comes in handy. If you’re really opposed to looking back, then look at your numbers and play with them. This advice isn’t only for your variable expenses. When it comes to fixed expenses you can often explore getting lower rates on your phone, cable and internet.

Step 4: The Lies I tell Myself

After hitting a rough patch recently I decided to revamp my approach. I had stopped tracking my spending properly and knew that my current approach wasn’t allowing me to pay off my debt in the time frame I wanted.

As I mentioned yesterday, I currently make more than I did a few years ago but have greater debt now. This time I decided that I would artificially limit my spending. I used the same process as above but this time I lowered the income line.

For me it’s a simple trick but keeps me from overspending my actual income.

If you have some space to allow this sort of lie to yourself and, more importantly, will believe it this is a great way to save while preparing yourself for a decrease of funds.

Step 5: Ready, Set, Spend!

Your budget, like your garden, needs to be visited regularly. I currently visit mine weekly and put in my actual spending beside my proposed budget. I’ve discovered weekly is best for me because any longer and I fall into overspending but too much and I feel constricted by the budget.

What are your tips for building a budget?

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