I’ve read that 80% of Americans don’t balance their checkbooks on a regular basis. If you are in that 80%, how do you create a budget that will work for your family in the long run?
The first place I have my clients start is by taking a look at what comes in through paychecks each month and how much they place in their savings account each month after paying taxes, insurance and the mortgage. From these numbers, we can assume that if the money isn’t saved or your account value doesn’t increase, you are spending the money. This is what we call our client’s living expenses.
If you don’t know what compromises those living expenses, try taking a look at your bank statements and credit cards to see where the money is going.
I’ve also started having my clients complete challenges around their spending that go from two weeks to a month. During the month, you record the money that you are spending – this can be done on an app or using a notebook – write down every penny that goes out. When you bring awareness to your spending, it is amazing what you find out. With that said, these are short term challenges. Most people will do this for a short period of time, but over the long run, they give up.
So what’s the next step? In our house, we budget from the top down. We have three bank accounts that a combination from our pay checks go into. The first is what I call our auto bill pay account. I have all of our set monthly bills come out of this account – the mortgage, the electric bill, the cable bill, etc. The second account is what we call our 20% account. This is our intentional savings account. 20% of our paychecks go to this account. If we have a larger bill for some reason this month, we’ll take the extra out of this account to cover it. For example, the gutters we are buying next month will come out of this account. Otherwise, it goes to savings. Finally, we have the spending account. We use this account for groceries, gas, going out to dinner, trips to the mall with our daughters. When this account is getting low, we know its time to stop spending. One of the best analogies that I’ve heard is that money is like a tube of toothpaste, when you get near the end of the tube, you squeeze very little out. It is always a work in progress, but it is working for us right now. Both my husband and I can only have our paychecks deposited to two accounts, so he deposits to the spending and 20% account and I deposit to the auto bill pay and 20% account.
Budgeting doesn’t have to be a grueling monthly process. If you take a little time up front and structure yourself properly, you can go on auto pilot until the next change in your life that indicates it’s time for an update. When you are intentional with your money, you have a far better chance of reaching your goals.
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