Kickstart Your Financial Health – Create a Budget

Want to kickstart your financial health? If so, it’s time to create a budget. Follow these tips to create a simple budget and start on the path to financial wellness.

Creating a budget will not only help you pay off debt, reduce expenses but it also makes room for true wealth building like saving and investing.

Track Your Spending

The first step to improving your financial health is to know how much money is coming in and out of your bank account. Do you have a budget? (Did I just see an eye roll?)  Here’s a suggestion, you can improve your financial health by creating a budget.

According to this Debt.com survey, nearly 31% of survey respondents are not using a budget. Tracking your expenses and understanding your spending habits is crucial to your financial health.

Budgets and expense trackers look vastly different.  Whether you choose a low tech option, like an excel spreadsheet or a fancy app, you need to understand how much you are actually spending. Pen and paper work well too! For some, this may seem like a tedious process. However, it’s a critical step. Spending reports are a great way to take inventory of how much you bring home (income), how much you are spending (expenses.)

Essential vs. Non-Essential Expenses

Take a look at all of your expenses for the past two or three months. Include EVERYTHING! Rent, mortgage, electricity, cell phones, haircuts, manicures, streaming services, groceries, and all those trips to Starbucks and the Dollar Tree. You want to know where every dollar is being spent.

We divide our monthly income into two categories. Since we get paid bi-weekly, our budget is divided by “1^st Half” and “2^nd Half.” Therefore, expenses that need to be paid by the 15^th of the month and bills that need to be paid by the 30^th. We also categorize our expenses to either essential or non-essential items.

Your essential expenses are those items that absolutely need to be paid each month. For us it included the following:

Discretionary Spending

Some might categorize discretionary spending between fixed and variable.  Essential and non-essential works for us because some of the expenses above do vary from month to month but we can easily estimate using historical data. Our non-essential items consisted of items that if we absolutely had to cut, we could and would. For example:

Spending plans are good for forecasting how much money you will need each month.

Start by determining if each dollar that comes into your life has a purpose. Give every dollar a job.

Will every bill get paid in full? Are you building an emergency fund for those unexpected expenses that might as well be expected, like an oil change or new car tires? Is there money you could begin to allocate to savings?  Perhaps it’s a vacation. In our case, it’s financial freedom.

Don’t be afraid to try various budgeting systems.  Find one that will work for you. If you like excel spreadsheets here’s the one we use: Miller Budget Template

If your monthly expenses include a plethora of debt payments you must take a pause and evaluate. Now may not be the time to think about investing or saving. (Unless it’s no or low-interest debt like a student loan.) It’s time to pay down and pay off that debt.

What good does saving $100 a month at 1% interest rate do, if you are paying a credit card bill with a 17% interest? Are there expenses in the non-essential or even essential budget that you could give up for a few months in order to pay off that debt?

Perhaps there is a way to earn extra cash. Maybe dog or house-sitting, selling some items on Craigslist or drive for Uber. Take a course and learn how to create printables and open an Etsy shop.  The list goes on. Find a side hustle that suits you.

When we became aware of the FI/RE journey, we had a car note and a student loan that was tying up our money and preventing us from investing.  We didn’t think it was “bad debt” because the interest rates were low. (Less than 3%) We made extra payments if we felt like it. It did not feel like a burden having it as an expense in our budget. What we soon realized, was that every dollar we paid in interest, was a payment going to a financial institution and not to the Miller Family Bank.

In Conclusion

Keep track of where every dollar goes each month. Whether it’s food and shelter or giving the credit card companies free money by paying fees and interest. Be aware of where your money is going and what your money is doing. Also, give yourself permission to spend money on some of your wants. Don’t deprive yourself of those things that bring you joy.

Through accelerated payments, we were able to pay off a car and student loans six months earlier than planned. We gave up discretionary spending in order or pay off those loans. Once we eliminated our vehicle debt and student loans we had room in our budget to begin wealth building.

We are not entirely debt-free. There are a couple hundred thousand dollars tied up in a rental property, but we have chosen to save and invest rather than pay off that mortgage. We are paying down the mortgage which reduces our liabilities and increases our net worth.

Create a budget so you have a plan for where you want your money to go. Budgeting can feel restrictive, if you are not used to limiting the amount you spend on after-work drinks or morning coffee runs, it can feel bad.  It doesn’t have to feel that way. If that morning brew is important to you, then budget it in. A budget will give you the freedom to cut out spending on the things that don’t matter to you and spend unapologetically on the things that are most important to you.

It’s crucial that you know where every dollar is being spent and that it aligns with your goals. Being mindful and intentional with your spending will allow you to prioritize those things you dream of most.

Creating a budget is the easiest way to not only plan for your expenses but where and how you want to save and invest your dollars.

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