Budgeting for Beginners: 8 Steps Toward Financial Fitness in 2019

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family monthly budget Budgeting for Beginners: 8 Steps Toward Financial Fitness in 2019 Bethany Pappas Contributor Miami Moms Blog

When was the last time you took a hard look at your family’s finances?  Do you know how much you generally spend on coffee, clothing, gas, groceries, personal care, and restaurants each month?  How many auto-payments do you have?  Is there something you’d love to do, but feel you can’t afford? 

With the right mindset and tools, you can eliminate the mystery and create a monthly budget—today!

For me, financial fitness starts with recognizing the difference between a budget mentality (frugality) and an actual budget.  What does this mean?  Just because I spend cautiously does not mean I spend intentionally.  After lots of research, I’ve compiled a list of how to become more intentional about monthly spending.  I encourage you to not skip a single step! 

But First, Change the Mindset

In my experience, a positive mindset motivates me to follow through on a goal.  When I sat down to do this last week, I adjusted a few negative voices first.

kids and money Budgeting for Beginners: 8 Steps Toward Financial Fitness in 2019 Bethany Pappas Contributor Miami Moms Blog
Give them credit.  He counted the $1 bills and paid for two pumpkins all by himself!
  • “We can’t afford it.” This defeatist statement will destroy productive efforts, and it may not be true.  Instead, try: “We can’t afford it this month.”
  • “I’m too busy.”  False.  That statement wouldn’t fly in a professional setting, and it shouldn’t at home either. 
  • “We’re frugal and not in debt.” While true, these statements don’t equal intentional spending.  I’m envisioning where we can be if we pay more attention.
  • “We don’t really need a budget.”  Remember that you’re setting the example of money management for your kids.  
  • “Budgeting is hard.”  Yes, but it will get easier once you have a system in place!

8 Steps to Create a Monthly Budget—Today!

Monthly Goal: Income – Expenses = 0

Step 1: Note all Income Sources and Calculate Net Income

If you have a predictable fixed income, calculate your monthly net income by adding up your monthly paychecks (income after taxes).  If you have a variable or commission-based income, total up your average earnings over 3-6 months and subtract expected taxes.  Or, if you own a small business and set monthly goals, you can use those goals as predicted income.      

Note: For our monthly budget, I did not include investments or retirement accounts as income.

Step 2: Make a List of all Fixed and Variable Expenses for the Last 3 Months

This is by far the hardest—and most important—step.  Why?  Because the best way to blow a budget is by plotting aspirational numbers—i.e., those not rooted in reality.  We use a free program called Personal Capital to track our accounts and expenditures.  What I really love about it is that you can easily export transactions by date range directly into an Excel spreadsheet to organize categories.  

Other options include Mint and You Need a Budget (YNAB).  Make sure to choose a service that has bank-style security protection.  If you prefer staying offline, grab a piece of paper and make a list of auto-payments, credit and debit card transactions, and all cash withdrawals.

Fixed expenses may include cable, car payments, car insurance, cell phones, health insurance, HOA fees, internet, mortgage payments, rental payments, or security alarm services.  

Variable expenses are things that vary each month like car maintenance, childcare, clothing, coffee stops, entertainment, gas, groceries, hair care, medical visits, parking, personal care, and shopping.

Note:  Because spending tends to be highest in the holiday season and at the end of the year, you may want to start with a different quarter like July-September. 

Step 3: Calculate the Average Cost of ALL Fixed and Variable Expenses

First, take a deep breath.  It may not be as bad as you think.  This average is rooted in reality and will give you the best starting point for your categories, cost-cutting opportunities, and goals.

Example: Groceries Month 1 + Groceries Month 2 + Groceries Month 3 = 1500; Average = $500/month

Step 4: Plot your Fixed and Variable Expenses into a Monthly Spreadsheet

I searched Microsoft Excel templates and used a preset personal budget template with formulas (hooray)!  Though it had some irrelevant categories, this saved me hours of unnecessary work.  By setting my perfectionism aside and using a template, filling in this spreadsheet took about 10 minutes. 

*For those of you who I lost at Excel, grab your calculator and start with my simple Budget Worksheet

Step 5: Set Goals for Variable Expenses with Grace

Start with your averages for necessities like gas, groceries, and utilities first.  Truth—when I first saw our grocery average, I wanted to cry.  My first inclination was to cut it in half, but that isn’t a reality for us because we shop organic and sustainable products.  Instead, I looked for other ways to cut the fluff. 

Step 6: Cut (some) of the Fluff

Here’s where you get real.  Do you need to visit Starbucks 2-3 times per week?  Get weekly manicures?  Buy that dress just because it’s on sale?  I decided to do three things this month.  First, I’m making coffee at home—and I’m going to invite friends in instead of going out for coffee.  Second, we’re meal planning and avoiding take out.  Third, any miscellaneous “shopping” will be on gift cards. 

Step 7: Check Your Credit Card Statements for any Auto-Payments

With rare exception, unnecessary auto-payments are not budget-friendly.  In under twenty minutes, the following three things can save you up to $750 this year.  First, we eliminated our quarterly pest control service ($40/month), and we now call a smaller company only when we have bugs.  Second, we chose a credit card without a yearly fee.  I opted for the American Express EveryDay card because we can keep our points and weren’t using any of the perks of a $95 card.  Third, cable companies are notorious for increasing prices and hoping that you’re not paying attention ($200+).  We don’t have cable and rarely feel like we’re missing out on shows we enjoy by using Hulu or Amazon Originals.   

Step 8:  Present, Print, and Update your Budget

This may seem obvious but seeing and showing your work is so important with money management!  Hard copy in hand, my husband and I will review this budget together.  My aim is to update it once a week to see how we’re doing.  This way, we can adjust it as needed and celebrate wins in our businesses like closing a real estate sale or acquiring new business.

To be honest, we’re not currently operating under the “Income – Expenses = 0” framework.  That’s where we’d like to be.  We will be.  Having a real budget to work from is the fastest way to get there. 

I encourage you to approach financial planning this year With Great Alacrity!