So in Pay Yourself First Part I we discussed how to make a budget. Now we’re getting to the juicy stuff, how to actually keep that budget and save money, which is the point of all budgets. If you haven’t read part one yet, go there now. It opens in a new window, so I’ll be waiting for you. It outlines how to make the budget which we’ll be working with today.
Let’s review before we continue, okay?
-you made a budget which outlines your income and your bills
-you included variables and their estimated monthly amounts, such as for gas or shopping
-you probably have little money left over
I’ll show you my budget, which will help in two major ways. First, it forces myself to make a budget, which is beneficial to myself, and second, it helps me illustrate to you what a budget looks like visually. Click on the thumbnail to view a screenshot image of a simple budget worksheet I made. You can mimic this style, too, by downloading the document and inputting your own information.
Since it is a table, you can add new rows and columns as you please. Note: in the variables section, I used three estimates of the three previous months to see my spending pattern, and then the far right column is the amount to stick to, or the budget amount. You can see that all the rows on the far right add up to my income total, which is $1,000.
The savings section is the one we’ll add in today. I broke my savings into two categories.
- One is for a specific goal that you’re working for financially, such as getting an apartment or paying off a loan. If you don’t need this, save all money into the emergency fund, which should be a savings account and relatively hard to take money from (such as not linked with your checking account).
- The other is one everyone should have: emergency fund. It is recommended that everyone have 1-2 months of income saved at all times to guard against emergencies, like car repairs or injuries, or other necessities. It also protects when one loses a job or hours. Even if you can only put in $10-50 a month, do it. Over a year you can either have $120-600, or nothing.
- You can fill your money with set expenses first, variables next, and savings last (whatever’s left over goes straight into savings.)
- You can start with how much money you’d like to save each month, and take that away first. Then fill in the set expenses section, and divvy up whatever’s left into your variables.
- Follow your budget. See how it works in practice now, not just theory. Test out your numbers and see if you can live with the changes. It might be hard not to party 2 times a week for you at first, and you might have something huge pop up unexpectedly that takes up a large chunk of money. It’s okay. Budgets are meant to be flexible.
- Try out your budget for at least a month, and reflect on how it worked for you.
- If you need to make some changes, cross out the numbers and edit.
- The point is to keep finding a plan that works without feeling like you need to survive on ramen noodles and beans.
- When you have racked up a comfy amount in your savings or you have met your financial goal, make a new one. Living in a rental but really want to own? Start putting away for that down payment. When you start putting away money for things that matter, saving won’t feel like work. It will truly feel like you are paying yourself, especially when that savings gets you that cool digital SLR camera you’ve been saving up for 3 months.
- If you ever have to dip into your emergency savings, remember to work on building it up as soon as you are back on your feet. You’ll never know what else may happen, so it’s safest to be prepared.
- An easy method to get used to budgeting for different categories is to put the exact cash amount you decided in your budget into different envelopes marked with the category, such as “food” or “clothes.” When you run out, that’s it. Combine this with online bill paying, and you’ll keep your two different types of expenses separate (the fixed from the variable) and avoid the urge to use bill-paying money for new shoes or what-have-you. Paying bills online, especially automatically, is a great way to avoid late fees!