Learning how to create a monthly budget is vital to the success of your future. However, many Americans are struggling to gain control of their finances. 63% of Americans don’t have enough money to cover a $500 emergency, while the vast majority of Americans are living one paycheck from the street. Our own federal government is in a massive budgeting crisis with a $19 trillion dollar debt that continues to climb. Unfortunately, budgeting is often over looked and deemed as being too time consuming, difficult, boring, and cheap. However, learning how to create a monthly budget is an invaluable tool for your financial success/future.
When I first went to college, I slept on my mother’s living room floor in a small apartment in my home town. I went to school full time, had football practice, then worked delivering pizzas at night. I was very fortunate of being able to receive financial assistance from the government to help me go to school. Fortunately, I learned how to create a monthly budget with the little money I had and was able to come to the aid of several friends financially during that time. Over the years, I have read books, created various spreadsheets, and advised dozens of people on the importance of creating a monthly budget. Now I want to pass that knowledge on to you so you can learn how to gain better financial independence and learn how to create a monthly budget.
Before you start your budget, I encourage you to take a step back and ask yourself these simple questions:
Although difficult questions, the above questions will help you begin to prioritize the reality of life. Dealing with the truth of life is incredibly important when creating a monthly budget. You have to be brutally honest with yourself. You would rather be in a situation where you saved too much than not enough.
I had a brief opportunity to play football in college. I learned some very valuable lessons about improving myself and rising to challenges:
Not everyone looked at it this way. Some of my teammates would get to a point of frustration because they weren’t playing. They thought they were better than they were, or they weren’t getting better and they would want to quit. At times, they would come to me and tell me they would want to quit and I always said the same thing:
“It doesn’t matter what I think of you. The only thing that matters is how you will judge this decision when you are old and you can’t do anything about it.”
Every time I had that conversation with someone, they always quit. They did not want to be honest with themselves. When learning how to create a monthly budget, you can easily fall into the same pit. It’s too hard, it’s too time consuming, I’m gonna miss out, but how will you judge those small decisions of not going out when you really need the money later? Don’t allow yourself to get caught up in the moment with your decision making when keeping a monthly budget. Think of how you will look at it when you need the money the most. After all of my years of advising people on how to create a monthly budget, the ability for people to be honest with themselves is the hardest to establish. Before I say anything else there needs to be a very basic understanding when budgeting.
Budgeting is not easy because it causes you to have to look at yourself, and life, honestly to be successful at it.
Now that I have helped you begin to establish one of the hardest parts about budgeting, let’s start establishing the habit of controlling your financial destiny.
When you first learn how to create a monthly budget you need to get in the habit of keeping all of your receipts for the month. I know in today’s digital age, no one wants to do that, but you need to physically see, on paper, how much you are spending and on what. Put them in an envelop and place them somewhere where you have to see it everyday. The first thing you need to establish is that your budget is a real thing. Checking your bank account through your phone, or computer, still provides you with a hoop to jump through, which may allow you to run from your budget. Face your budget and embrace it. Make it a part of your everyday.
Now that you have those receipts, enter them into a spreadsheet. However, creating a spreadsheet can be extremely time consuming. Of course, I hope to make this as easy for you as possible. Below, I have included two copies of the very budget spreadsheet I use everyday. One in Microsoft Excel and the other in Apple Numbers. Feel free to click on the links below to download them. You can customize them to your needs.
Yes. There are a lot of apps out there that people download. However, this doesn’t mean that they have established the habits to stick to their budgets. For example: Level Money in 2015 had 800,000 downloads of their budget app but declined to release how many people were actively using the app. Yes. There are apps, but that does not mean that people are establishing the habits necessary to successfully keep a monthly budget? If you want to create the right habits, you need to start building a base of keeping your receipts and using a spreadsheet. After you have established those habits, and are consistent, then an app could be a great solution for you.
My grandfather has a saying, “you pay the candle maker, the baker, and the butcher, but what do you pay yourself?” The whole purpose of creating a monthly budget is to pay yourself more at the end of the month. Commit yourself to honestly looking at your budget once a day, once a week, and monthly. Not alone does this create a healthy habit, but it also allows you to see where you can cut costs on eating out, impulse buying, and other forms of waste. Set goals for yourself and hold yourself accountable.
you pay the candle maker, the baker, and the butcher, but what do you pay yourself?
By articulating your goals of keeping a monthly budget with people who are close to you, people will be aware of it and make adjustments to their lifestyle to better accommodate you. They will be more understanding of making plans with you that are more easier for you to do financially. Hopefully the people you have surrounded yourself with will be understanding and supportive of your decision. My end goal would be for you to be an evangelist to them about the importance of keeping a monthly budget and passing your knowledge on to them. If the people you have surrounded yourself with are not supportive, then you need to re assess the importance of those relationships. Another hard, and honest, look you will have to take at your life. Now let’s review some pitfalls that a lot of people fall into with their budgets
Consumerism is what I usually see when people are struggling to stick to their budgets. They fall into the pit of filling the gap in their soul with physical things. I know that may sound a little abstract or too in depth, but it is true. Here are a few pitfalls I see people falling into:
If you are sticking to a budget, eating out is the easiest pit to fall into. The ease and social aspect to it is something that I even struggle with. Sometimes you are too tired to cook or a group of friends want to go out. In order to save your sanity, and personal relationships, you will need to go out to eat. There is nothing wrong with treating yourself. But there is a point of realization where treating yourself becomes over indulgence. If you are eating out four times a week, then eat 2 times a week. Reserve a day for you and a day for your friends. Go grocery shopping and cook you meals on Sunday. Cooking is great and it allows you to acquire a new skill. Eventually, you will be able to make a lot of the meals you pay to go out and eat!
Do you need it or do you want it? That is a great question to ask yourself when you are shopping. We all need food. In fact, we can not live with out it. However, do you need that new pair of shoes? Is it an absolute necessity or could you wait a month or two to buy them? With every purchase, get in the habit of asking yourself, “Do I need this or do I just want it? If it is a want, try skipping it for now. Go home, and create a list of wants. Look at it everyday and start visualizing your wants vs impulsively creating a want just because it is on sale. Don’t justify purchases because something is on sale. No matter how many pairs of Nike’s you buy, they will never contribute money for you into your savings account. Only you can do that.
A way that many people justify purchasing things is by simply stating, “I deserve it”. Yes, you do deserve it, if you didn’t use your credit card. If you are unable to pay for something outside of using your credit card, then you didn’t really earn it. Of course, there are certain forms of debt that are acceptable and understanding. For example: owning a house, student loans (I had $27,000 of student loans), or the unfortunate case of medical bills. But people really get caught up with using their credit cards and not paying off their balances. If you are struggling with that today, I would immediately cancel all credit cards and pay those off. Make sure to add that section to your monthly budget and adjust your entire purchasing strategy to accommodate your fight for a debt free life. Again, facing the realities of life is what is important in a situation where debt is involved. Putting it off only digs a deeper hole and makes everything worse.
Rarely do we look past the nice car, clothes, or house. Wealth and success is usually based on how it is perceived. Regardless if there is any money behind it. Be willing to talk about your success and failures with your budget. People will be interested in it and ask you questions. Answer them and be honest on how it has made you feel. The good parts, the bad parts, and all the emotions between. You may be the only person they know who has learned how to create a monthly budget. My hope for all of you who stumble upon my blog that you gain control of your finances and help learn how to create a monthly budget. Pay it forward.