How many times have we had more month at the end of our money instead of more money at the end of the month? Wouldn’t it be nice if we could spend guilt free money that did not have to go towards anything? What if we could save that guilt free money and then take ourselves or our families on vacation? If this seems too good to be true — it’s not. This guilt free money lifestyle can and will be obtainable. How? It’s called, using a budget.
Oh no! It’s that word — budget. The word that could mean: self-discipline, organization, self-awareness, confidence, and sacrifice. Also, time and planning. Overall, the word budget means: WORK.
To have a budget means that one puts in the effort; they work at it. A budget is not an easy, check our bank app and see how much money we have in our account, then go out and spend it. It is a process that takes time, and the best budget advice I received was from my finance professor who said, “The best budget… is the one you use.” What he was saying was that there is no one right way to budget one’s money. When we find a budget system that works for us, we need to use it all the time. It’s when don’t use any budget or we stop using our budget that we fail, and that is the wrong way to budget.
I am going to show you the budget I use. It might not work for you; however, if you are struggling with finances and want more month at the end of your money or you want to change up how you do things, it might be what you are looking for.
To start, I have to say that I did not come up with this system. I received this from my brother and his wife. I noticed that they saved the down payment for their house quicker than what they had said it would take. I also noticed that they were still able to go out to eat, and she buys makeup; he buys Nerf Guns and never did they complain later, “We shouldn’t have spent that money; it was for this bill or that bill or gas money or ‘great, now we have to ask our parents for help.’” I watched them in awe at what they were doing, and I wanted to know how they were doing it.
What they shared with me was truly life changing.
To start, what you need for this budget system is:
- Excel or Word/ Google Doc or standard notebook, pen(cil) and a calculator.
- Incoming money or funds.
- Your bills in black and white!
- More than one checking account.
- A savings account or multiple.
- Online banking: app(s) and website(s).
1a- Using one of these or a different method of writing things down starts the budget process. One needs to document what is going on.
2a- Every dollar that you receive through your employment(s) needs to be written down. This does not include extra income like bonuses or selling a massage table you don’t use anymore, it’s only what you receive on a regular basis.
3a- Write everything down with the monthly and minimum amounts and the total due at payoff if you have credit card debt. This includes gas money and groceries, anything going out of your wallet on a regular basis. It might be shocking at first or not, but the fact is, when you see it in black and white you have to take possession or control of it, you have to know it exists because it is staring at you. However, it is not as scary as it sounds.
4a- You can have more than one account with one bank or use different banks. For this system to work however, you need multiple places to put money and that does not mean cash in your wallet. I’ll go more in depth to this reason in a minute.
5a- If you bank with a credit union, you are required to have a savings attached to each checking. Again, it’s more than one place to put money. And again, I’ll go more in depth later on.
6a- In this digital age it is so easy to download an app or go to a website and view your incoming and outgoing funds. If you are like my parents, the generation that doesn’t really trust anyone with their money, banking apps are some of the most trusted for online security. According to Forbes, they state that, “Some banks that have multi-factor authentication on their mobile apps don’t provide the same capability on their websites. Well-designed mobile apps don’t store any data, and you’re less likely to hear about a virus on a smartphone.” Banking apps can also provide your balance in the checkout line or waiting for your order at McDonalds or even in the security line at the airport. Let’s face it, they’re quicker and easier and that helps this system work better.
Now that you know the six elements to this system and why you need them, I’ll tell you how this works. I know, “Couldn’t you have just told me this in the beginning?” Yes, but are you ever told how to put the ingredients into Grandmas peach cobbler without knowing how much or exactly what those ingredients are? A system has an order of operations and this one is no different.
When I first asked my brother what their system was and why they seem to not worry about finances and money anymore, they were glad to tell me. In fact they wanted to tell me what they do, and I was wanting to change my current non working systems so bad that I drank up every word.
First: Don’t bankrupt yourself. You don’t want to get to the point that every dollar you have is going out and you are left with nothing. Then you become “that person.” The one who lowers their head and says, “Sorry guys, unless someone will pay for me, I can’t go.” No one likes being this person. That’s why this system takes work.
This first step requires extreme self-discipline, and it is okay to say no, not that you can’t go and not because you don’t have the money, you don’t want to spend it and be left with zero.
Second: Pay yourself first! I was the same as you might be right now. What?! I have rent, my phone bill, this bill, that bill, and the list goes on and on. You pay yourself first with an allowance. It might sound childish and take us back to our youth, but it works, and we don’t want to feel so strapped with our finances that we can’t even enjoy a Taco Tuesday. The reason it works is because of the two bank accounts. If you have direct deposit, you can divide that money up. I’ve been doing this system so long that I don’t even notice, until I receive my paystub email, that the money went in. I don’t need to wait for my checks; in fact, I don’t have to worry about them at all.
I have labeled my two bank accounts this way: 1- bills! 2- my allowance. My direct deposits go into my accounts just like that too. I NEVER use the debit card on the bill account because it’s not guilt free money. Every dollar in there is earmarked for something else. Something else that I need in order to live the way I do. My allowance account is the guilt free money. Every two weeks, 50 bucks goes into this account and it is mine to do with whatever I want. I can blow it at Ulta, Old Navy, Cheesecake Factory or I can leave it right where it is and save it. In January of this year, I went to Ulta, and I dropped hundreds of dollars there. Should I have felt guilty for spending that much, maybe, but it came out of my allowance account — it was guilt free. Insert huge smiley face here.
Third: Deposit into a savings account. Even if it’s only ten dollars every check or ten dollars a month, an amount is going into that account. I was able to study abroad in London because I had a savings account and money was going into it every month. I was already saving the money, I just hadn’t marked it for anything. Also, I didn’t feel guilty spending the thousands of dollars I needed for my trip, why — it was guilt free.
Now, I have three savings accounts. I have two attached to my primary checking: the bills account, and one attached to my allowance. A set amount is going into each savings account every paycheck. Because I am only putting 50 bucks a paycheck into my allowance, I am being self-disciplined. I budget about 150 bucks for my allowance account. I am only giving myself 50 bucks every two weeks to spend and the other hundred goes to that savings. Sometimes, when I check it, I am amazed at how much I have in there, and it provides me with a feeling of security. If anything were to happen medically, I have money to help with that, guilt free money. I won’t feel the anxiety to have a medical bill I wasn’t expecting rob Peter to pay Paul. Meaning: Use one bill to pay another and that first one doesn’t get paid for that month.
Fourth: Have a set plan of action for credit card and loan debt. If you are able, pay more than the minimum every month. Financial guru, Dave Ramsey uses the “snowball effect,” and it works because I have seen my brother and his wife use it. He states, “The debt snowball method is a debt reduction strategy where you pay off debt in order of smallest to largest, gaining momentum as you knock out each balance. When the smallest debt is paid in full, you roll the money you were paying on that debt into the next smallest debt.” By doing this, you are able to keep your head above water. When all the debts are paid in full, put that money somewhere else. Raise your allowance or put it into savings. It’s your money now. It doesn’t belong to anyone else anymore. Now doesn’t that sound fantastic?
Fifth: Preform some plastic surgery. If credit cards are NOT your friend, meaning: You pay them off and use them again or you consolidated your debt to one payment, but you pulled out your cards again and used them on top of that new payment — I am guilty! I am so guilty of this, that I have had to take this advice like a pill that is hard to swallow. I used to love a wallet full of cards. I felt like I was an adult — nope. I was flashing money that wasn’t mine, and I had to pay high fees to borrow it. This resulted in a bankruptcy that I am not proud of, but I desperately needed it in order to wake myself up.
Plastic surgery is cutting up those cards and closing those accounts. If you can be smart with credit cards, use it and pay the balance in full when the bill comes- avoiding the interest, that’s up to you. It is smarter to have a credit card through your bank or credit union as their interest rates will be lower than department store cards or even the popular, Discover, Capital One and others. And do not be fooled by “cash back awards,” that bait is sneaky. I learned in my finance class, that for most cards, you need to spend way more than you ever would to even start the cash back. Then you have to pay that balance in full and then keep paying every balance after that in full to keep receiving the cash back.
Sixth: Always be credit conscious and remember: Large print gives, small print takes. Whether it is a house payment, new car payment or simple credit card debt, read everything, especially the small print. According to creditcards.com, “A national bank charging 79.9 percent interest on a credit card is legal — as long as the issuer fully discloses the terms as required by the federal Truth in Lending Act.” With the Credit CARD act of 2009, credit card companies have to notify you up front of their APR and the increases, but they are still allowed to charge up to that amount because it’s there money, not yours, and APR’s are not federally regulated.
Seventh: This section, I added to this budget plan because it is more of a warning. Never, ever, use a payday loan lender — ever! I am saying this because I have done this, and I was a slave to that company for over a year. When I say slave, I mean it. You are working to pay that loan you borrowed and the possibilities of paying that off and never going back are very hard to achieve. They also charge the highest interest rates of any loan because on the front page of the document there is a box with the interest rate in large, bold font. I was being charged 45-50 percent of those loans. The only way I was able to pay them in full and never go back was when I realized that my next check would not be enough to cover the amount I borrowed. Trust me, don’t do it. And if you have, pay the next one and walk away. Rearrange your budget, cut the expenses that are not necessities, and never go back.
Guilt free money is possible if you are willing to WORK for it and discipline yourself with a BUDGET. If, after reading this, you want to apply it, great; however, you don’t need to use this system. You should have something though to help you manage your finances so: you can sleep at night, not have anxiety towards money, and you can have some fun. You’ll be able to say, “I love that place; let’s go.” You might even see a friend in the corner with their head down and respond, “Tonight, I got you,” happy that you are able to treat a friend who is low on cash. You might also add, “but you need a budget, so next time you can treat me.” You’ll both smile and enjoy a night out. At the end of the night you might even tell your friend, “I will tell you, that if you don’t have a budget and a system in place for your money, you are not telling your money where to go, you are wondering where it went.”