Part Five – Let’s Build a Snowman

This is Part Five of my five-part, eight-week series on The Beginner’s Guide To Budgeting

To build a snowman you must first start with a snowball. You can then start rolling that snowball in the snow to create a much bigger snowball as more and more snow collects. Well, the same goes for money you put towards paying off your debt.

Most snowball theorists will tell you to focus on the smallest debts (easiest targets) first when looking at what debt to pay off. While that might be the fastest towards a feeling of self gratification and a sense of accomplishment I prefer rather focusing on the biggest bully in the bunch.

To me watching that huge number (however so slowly) dwindle every month actually motivates me to find MORE money in our budget to hit it with.

Even if you are one that prefers to take out the smallest debts first however you go about it you are getting ahead!

Our goal with this step is to trim our budget even further and find more income to put towards our debt!

Debt pay down plan:

1. List out all your debts totals | Decide which one you want to target first.
2. Find extra money | This is where you re-adjust your spreadsheets and maybe trim out some FLUFF and trim back on some FMEs to create more money that can be earmarked for that bill every month.
3. Cut up those credit cards | You need to commit to not using them. If you can’t bring yourself to take a scissors to them just yet try freezing them in a baggie of water. And clear out your cookies on your computer!! No auto-filling  your credit card numbers into online shopping carts.
4. Put any and all extra money towards your debt | Commit to putting that birthday cash, that 2% raise this year or giving up your mani/pedis for awhile and lopping off your debt. I can guarantee it will feel so much better to not be bound to your debtors than a shiny new coat of nail polish on your little piggies.
5. Snowball your money into the next debt | When you have paid off a debt (regardless of how large or small) put that extra cash now towards the next one on the list and continue to do that as your debts are paid off and the amount going towards the next one gets bigger and bigger.

This whole process will obviously be a work in progress and will need to be re-evaluted time and again as your income changes, debts change (hopefully go down) and life happens.

By having a great budget in place and committing to tackling your debt you will not only reduce your money worries but you will be the boss of your bank account.

Part Two – The Big Picture

This is Part Two – of my five-part, eight-week series The Beginner’s Guide To Budgeting.

Now that you have all those entries, receipts and statements that contain your entire expenses for one full month, what exactly do you do with them?

1. List out the categories you think you spend your money on along the top of a sheet of paper

First we are going to list out all the categories to give us a bigger picture. What categories, or labels did you spend your money on? This exercise is to get them onto paper if you didn’t already and if you have them on paper already it will help categorize even further.

What are some of the basic major categories that you spend your money on? Housing, utilities, food, car maintenance, toiletries, personal (grooming, clothes)…etc. Those are some of the basics that you can start with. As you come across purchases/expenses you don’t have accounted for add a new category for those as you go (and if you used my Monthly Bills & Expenses Worksheet from Part One you are already ahead of the game).

2. Enter your dollar amounts under the applicable column

3. If you can open a spreadsheet and let that do the work for you (I ♥ spreadsheets)

Here’s an abridged version of what it might look like:

4. Don’t forget to make a Misc. column for those items that are hard to categorize (Like little Johnny’s piano lessons or your furry kid’s monthly spa treatment) we’ll figure those out later. We want every amount under a category

Once you’ve placed all your expenses under a categories take a moment and pat yourself on the back. You completed the second step in becoming more aware of your money. Now take a look at the columns. See any common themes? Is one column a little longer (heavier) than another? Is there a lot of items in your Misc column that you didn’t know exactly where to put? Do you see 45 <insert coffee shop name here> entries under your Food category or do you have a Caffeine category all it’s own? You are starting to see how you get a bigger picture overall on where your money is going.

5. Add up the totals for each category and then add up the total of the totals

Now comes the scary part, let’s add up the total of each of your categories and then the total for all the categories for the whole month. That amount, while it might be hard to swallow, is a real tell-tale sign of whether or not you are living within your means.

So from the example above:

This is your total month’s worth of expenses. Pretty scary, huh? Probably a lot more than you think you would spend in one month and there are probably some exceptions in that total – car registration was due this month, Christmas snuck up on you or you suddenly needed brakes for the  car and if you weren’t prepared it probably went on a credit card. If you have any of these “life happens” amounts I would move them to their own category for now (don’t include it in your total) and in Part Three I’ll show you how to plan for those Expected and Unexpected Expense Exceptions (EUEE, or better yet, what I like to call the ‘Ex’ factor).

6. Compare that total to your monthly income

Next to that total amount write down your monthly income (usually two paychecks if paid every other week). Now is your income total greater than your total expenses or vise versa?

If your income is larger than your expenses there is hope. If your expenses are larger than your income we can get you help.

And by help, I mean more spreadsheets 🙂 because I ♥ spreadsheets, remember.

This will allow you to find out where this money miscommunication is coming from and determine exactly how to correct it!

7. Break it down

So let’s take it a step further and categorize, or shall we say, fine tune the categories a little more.

For example break down:

• the Food category into Groceries, Out To Eat Evening, Out To Eat Lunches, Coffee, Work Treats, School Lunches.
• Auto could be broken down into Car Payment, Car Maintenance, Gas…you get the point.

So your homework this next week is to take each of the basic categories that you started with and break them down even further. I have provided the printable spreadsheets below, of course, to help you do just that. Or use your own spreadsheets on your computer. Whatever route you choose this will allow you to differentiate between your financial ‘wants’ and ‘needs’ and help you determine how bad you really want something.

You will have your ‘needs‘ – those Fixed Monthly Bills (FMB) that are due every month and your Fixed Monthly Expenses (FME) those things you need to purchase every month, you know, like food to eat and Kleenex to blow your nose with, that stuff. And then you will have your ‘wants‘ the things that I like to call FLUFF or better know as: Fun Life purchases Under False Finances – those impulse items, those things you don’t-really-need-because-you-really-can’t-afford-but–really-REALLY-want-so-it’s-going-on-the-credit-card, yeah, those things. they are FLUFF. And now you will also have the ‘Ex Factor’ items for those unexpected life events that seem to pop up randomly out of the blue or on schedule every year.

So see you in a week, happy spreadsheet-ing!

The Beginner’s Guide To Budgeting – Series

Ok, we are quickly approaching 2016 and it’s a good of time as any to start revisiting our financial resolutions from the beginning of this year. Or start working on those for next year. Never hurts to be ahead of the game.

Well, if you’ve fallen off the budgeting bandwagon this past year, let me see if I can help get you back on board or at least help you book another trip for this upcoming year.

Budgeting can be confusing and overwhelming and some might not even know where to begin when it comes to budgeting your money. This isn’t something that is taught in school (though I HIGHLY believe it should be!), nor is this something that comes naturally to many of us.

So, I am offering a five-part, eight-week series that starts tomorrow to help you take the steps to becoming more aware of your finances and more mindful of your money.

Disclaimers: Now, I am not a financial planner or money expert by any means…. I just know what works for us. It might not work for everyone but it will at least get you thinking and possibly taking a step in the right direction.

Part One (Week 1-4): Track Your Expenses

Part Two (Week 5): The Big Picture

Part Three (Week 6): Tell Your Money Where To Go

Part Four (Week 7): The EX Factor

Part Five (Week 8): Let’s Build A Snowman

So come on back for some budgeting fun!