I’ll be honest with you here. I do not know a ton about creating a budget. That’s why I’m here to learn besides you, not to teach you. Although, one day I would like to possess the knowledge to be able to teach all of the skills and challenges I put up on this site.
Anyways, the challenge this month is to create a budget. One that will not only help us to increase our spending rate, but also to make our lives easier at the same time.
Join me during the month of July and learn how to create a budget.
Step #1 Know what your net income is
Know how much you make in a month and in a year. This will allow you to look at how much money you make and how much you can afford to do with your money.
Step #2 Track your spending
The next thing you need to do is know how much money you generally spend in a month.
I would separate the list into categories. Recurring bills such as electricity and rent, subscriptions such as spotify and netflix, essentials such as food and gas, and non-essentials such as candy, going out to eat, and other leisure based expenses. It might also be worth having another category for sanity spending such as your morning coffee or books. Things that you aren’t willing to compromise on even though they aren’t essential.
The goal is to keep all of these things well below your monthly and yearly income so that you can start saving money and even investing if you want.
Step #3 Assign your spending
This tip is about making sure you don’t overspend your money and allocating your money to certain categories to allow for worry free spending. Once you know how much you are spending you can choose how much to allocate to each category to put your money where it needs to go and allow you to save for your long term finance goals.
To take from Ramit Sethi’s method of money allocation there are 4 main categories to assign your money towards.
- Fixed Costs ( Bills, food, gas )
- Investments ( 401K, Roth IRA, )
- Savings ( Vacations, buying a house, buying a car )
- Guilt free spending ( Hobbies, eating out, stuff you NEED from amazon )
Once you have money from each of these costs going towards these things automatically each month it will make managing your money infinitely simpler. And even better you will be saving money each month and investing so you can watch your assets grow over time.
My favorite part about this is the guilt free spending category. Once I know all my bills are covered and that I am both saving and investing I will no longer have to worry about each little purchase I make. If you’re like me you constantly question whether you should make each purchase and whether it’s going to set you back for the month. With this system you will know exactly how much you can spend, you won’t have to feel guilty about buying the things you love and once you’re out of money in this category that’s when you stop. It takes the guessing game out of it all.
Let's just start with that
So far for this month let’s just start with calculating your net income and tracking your expenses. Once you’ve tracked that for the month we will start adjusting our budget and also using the program from I Will Teach You To Be Rich in order to automate our savings and our investing. That way we will not have to worry about our spending anymore we will just have to stick to our budget.
So get to tracking your spending and reading the book for July and I will be updating this post about creating a budget soon.
Here in an additional resource from the author of the book were reading this month, Ramit Sethi. https://www.iwillteachyoutoberich.com/blog/budget-help/ I highly recommend reading this article. It goes over automating your spending, spending on what you love, and freeing up your money.