BUDGETING 101:       
 
HOW TO BUDGET YOUR MONEY FOR HOMEOWNERSHIP.

BUDGETING 101: HOW TO BUDGET MONEY. *PART 1*

 

WHEN IT COMES TO HOW YOU BUDGET YOUR MONEY, THERE’S REALLY NO RIGHT OR WRONG WAY TO DO IT.

 

IF YOU’RE TRACKING YOUR EXPENSES & INCOME IN ONE FORM OR ANOTHER, YOU WILL SUCCEED!

 

I KNOW THAT GOES AGAINST COMMON FINANCIAL ADVICE, BUT BUDGETING IN ITS TRADITIONAL FORM DOESN’T WORK FOR MOST PEOPLE. 

 

THAT’S WHY WE’RE GOING TO COVER,

 

HOW TO BUDGET & THE DIFFERENT BUDGET PLANS TO HELP YOU DECIDE WHICH ONE WILL WORK BEST FOR YOUR FINANCIAL SITUATION. READY?!, LET’S GET TO IT!

 

FIRST, SEPARATE YOUR INCOME INTO;

 *NEEDS,

 *WANTS,

 *SAVINGS & DEBT REPAYMENT.

 

USING ONE OF THE (6) SIX FOLLOWING BUDGET PLAN’S; 

 *THE "ENVELOPE" SYSTEM,

 *THE “TRADITIONAL” LINE-ITEM BUDGET,

 *PROPORTIONAL BUDGETS,

 *THE PAY YOURSELF FIRST MODEL,

 *THE "ZERO-BASED" BUDGET &

 *THE "50/30/20" RULE.

 

INCOME: SO, SAY YOU BRING HOME (NET PAY) OF $2,000/MO.

 

HOW CAN YOU PAY FOR HOUSING, FOOD, INSURANCE, HEALTH CARE, DEBT REPAYMENT & HAVE FUN IN CALIFORNIA (TO BE EXACT) WITHOUT RUNNING OUT OF MONEY?

 

THAT’S A LOT TO PAY WITH A LIMITED AMOUNT OF INCOME.

 

THE ANSWER IS TO MAKE A BUDGET!

 

SO, WHAT IS A BUDGET, EXACTLY?  *A BUDGET IS A “PLAN” TO ALLOCATE EVERY DOLLAR YOU HAVE.

 

HERE’S HOW TO SET ONE UP;

 

*CALCULATE YOUR MONTHLY INCOME, PICK A BUDGETING METHOD TO MONITOR YOUR PROGRESS.

 

NOW, WE'LL DISCUSS THE (6) DIFFERENT BUDGETING PLANS;

 

1) THE “TRADITIONAL” LINE-ITEM BUDGET:

 THIS IS THE BASIC BUDGET MOST ARE FAMILIAR WITH SINCE OTHER BUDGETING METHODS ARE BUILT ON THIS MODEL. 

 

THIS METHOD WORKS BEST FOR THOSE WHO NEED TO:

 *GET MAJOR SPENDING ISSUES UNDER CONTROL,

 *ELIMINATE DEBT, &

 *PEOPLE WHO DON’T MIND ITEMIZING THEIR EXPENSES.

 

THIS IS A CLASSIC EXAMPLE OF BUDGETING WHICH WORKS BEST FOR MOST PEOPLE. TO GET STARTED, LIST OUT ALL YOUR EXPENSES, BOTH NECESSARY & DISCRETIONARY. THAT MEANS EVERYTHING FROM YOUR RENT/MORTGAGE, UTILITIES, INSURANCE PREMIUMS, CO-PAYMENTS, CELL PHONE BILL, GROCERIES, GAS, PET SUPPLIES, HAIRCUTS, CLOTHING, & DEBT GETS WRITTEN DOWN.

  

GET REALLY DETAILED WITH YOUR CATEGORIES, LIKE. 

*HOUSEHOLD,

*DEBT,

*TRANSPORTATION,

*FOOD, ETC.

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LISTED OUT, WITH ALL THE SEPARATE EXPENSES UNDERNEATH, TO BE THOROUGH. THAT’S WHY IT’S A “LINE-ITEM” BUDGET, YOU BREAK EVERYTHING DOWN, SO YOU CAN SEE EXACTLY WHERE YOUR MONEY IS GOING.

 

YOU SHOULD ALSO INCLUDE 3 ADDITIONAL COLUMNS:

 *ESTIMATED SPENDING,

 *ACTUAL SPENDING, &

 *WHAT’S LEFTOVER.

 

THIS WAY, YOU CAN SEE HOW WELL YOU DID, & COMPARE YOUR TOTAL SPENDING WITH YOUR INCOME.

 

2) PROPORTIONAL BUDGETS:

 YOU MIGHT HAVE HEARD OF THE 80/20 BUDGET, OR THE 50/30/20 BUDGET. THESE BUDGETS GIVE YOU LESS STRINGENT GUIDELINES ON HOW TO SPEND & SAVE YOUR MONEY.

 

EXAMPLE;

 *IN THE 80/20 BUDGET, YOU SPEND 80% OF YOUR INCOME & SAVE 20%.

 *IN THE 50/30/20 BUDGET, YOU SPEND 50% ON NECESSARY EXPENSES (NEEDS),

 *30% ON DISCRETIONARY/MISCELLANEOUS EXPENSES (WANTS), &

 *PUT 20% TOWARD “DEBT & SAVINGS”.

 

THIS BUDGETING METHOD IS GOOD FOR THOSE WHO DON’T WANT TO FOLLOW A LINE-ITEM BUDGET. IN SIMPLE TERMS, THIS METHOD ALLOWS YOU TO FIGURE OUT HOW MUCH TO PUT INTO SAVINGS & HOW MUCH MONEY YOU CAN SPEND.

 

THE ONLY THING IS YOU WILL NEED TO DECIDE BETWEEN YOUR WANTS & NEEDS. SOMETIMES A LOT OF PEOPLE CAN’T MAKE THAT DETERMINATION, CAUSING THEM TO JUSTIFY THEIR SPENDING ON WANTS.

 

SO, WHAT IF YOUR DEBT TOTALS MORE THAN 20% OF YOUR INCOME?  OR YOUR EXPENSES ARE MORE THAN HALF YOUR INCOME?

 

THINK OUTSIDE THE BOX & ADJUST ACCORDINGLY. MAYBE YOU WANT TO FOLLOW THE 30/10/60 MODEL & SAVE MORE MONEY OR DO THE 40/10/50 TO PAY OFF YOUR DEBT & SAVE FASTER.

 

THE OVERALL LESSON TO LEARN HERE IS THAT BUDGETS ARE SUPPOSED TO BE FLEXIBLE, SO YOU CAN CHANGE THEM AS YOUR FINANCIAL SITUATION CHANGES.

 

3) THE PAY YOURSELF FIRST MODEL

 PAYING YOURSELF FIRST PUTS THE FOCUS ON YOUR SAVINGS. THAT’S BECAUSE YOU PUT MONEY AWAY AT THE BEGINNING OF THE MONTH BEFORE YOU HAVE A CHANCE TO SPEND IT ON ANYTHING.

 

IT REQUIRES YOU TO FIGURE OUT THE DIFFERENCE BETWEEN YOUR INCOME & EXPENSES UPFRONT, AFTER THAT, IT’S EASY UNTIL SOMETHING CHANGES IN YOUR SITUATION.

 

THIS BUDGETING METHOD IS GOOD FOR THOSE WHO ARE LEFT WONDERING WHERE ALL THEIR MONEY WENT AT THE END OF THE MONTH & DON’T WANT TO FOLLOW A STRICT BUDGET.

 

CALCULATE YOUR MONTHLY NET PAY (TAKE AN AVERAGE OF THE LAST 6 MOS. IF YOUR INCOME FLUCTUATES), TOTAL UP ALL YOUR MONTHLY EXPENSES, & THEN SUBTRACT TO FIND OUT WHAT’S LEFT. YOU'LL WANT TO SEND THIS AMOUNT TO YOUR SAVINGS ACCOUNT EACH MONTH.

 

A GOOD RULE TO FOLLOW FOR HOW MUCH YOU SHOULD BE SAVING IS TO AIM FOR A MINIMUM OF 5% OF YOUR INCOME, 10% IS GOOD & 20% IS EXCELLENT, TAKE YOUR TIME & PACE YOURSELF, YOUR GOAL IS ACHIEVABLE!

 

IF YOU’RE IN THE RED EACH MONTH, THEN YOU NEED TO FIGURE OUT WAYS TO REDUCE YOUR EXPENSES OR EARN MORE INCOME SO THAT YOU'LL HAVE MONEY TO SPARE FOR SAVINGS.

 

4) THE ENVELOPE BUDGET:

 THIS BUDGETING METHOD IS LIKE A LINE-ITEM BUDGET BUT SIMPLIFIED & BASED AROUND USING CASH ONLY.

 

YOU CALCULATE THE MAJOR EXPENSE CATEGORIES YOU NEED CASH FOR, SUCH AS:

 *GROCERIES,

 *GAS,

 *DINING OUT,

 *ENTERTAINMENT,

 *FUN, ETC.,

 

GRAB ENVELOPES FOR YOUR CATEGORIES & THEN FIGURE OUT HOW MUCH MONEY YOU CAN ALLOCATE FOR EACH.  THEN, TAKE A TRIP TO THE BANK & WITHDRAW THE AMOUNT OF MONEY YOU’LL NEED FOR THE MONTH.

 

DIVIDE YOUR CASH UP BETWEEN THE ENVELOPES.  WHEN YOUR CASH IS GONE, YOU CAN’T SPEND MORE. IT’S SIMPLE & IT FORCES YOU TO GET CREATIVE ON SPENDING WHEN YOU’RE RUNNING LOW ON FUNDS.  AT THE VERY LEAST, IT MAKES YOU AWARE OF WHAT YOU'RE SPENDING.

 

THIS BUDGETING METHOD IS GOOD FOR THOSE WHO HAVE PROBLEMS CONTROLLING THEIR SPENDING WITH CREDIT CARDS & DON’T REALIZE HOW MUCH THEY’RE SPENDING. IT ALSO WORKS WELL FOR THOSE FRESH OUT OF DEBT & THOSE WHO DON’T FEEL COMFORTABLE USING CREDIT CARDS YET.

 

5) ZERO-SUM BUDGET THIS IS EXACTLY WHAT IT IS; AT THE END OF THE MONTH, YOUR BUDGET SHOULD EQUAL ZERO. THAT MEANS THAT IF YOU HAVE $200 LEFT AT THE END OF THE MONTH, THAT $200 NEEDS TO BE PUT SOMEWHERE. THIS JUSTIFIES EVERY DOLLAR NEEDS TO BE ACCOUNTED FOR.

 

THIS BUDGETING METHOD IS GOOD FOR THOSE WHO OFTEN HAVE MONEY LEFT AT THE END OF THE MONTH BUT END UP THINKING OF IT AS MONEY THEY CAN SPEND FREELY.

 

WHILE THIS MIGHT SEEM LIKE THE OPPOSITE OF THE PAY YOURSELF FIRST METHOD, IT CAN BE USED SIMILARLY IF YOU BUDGET BASED ON LAST MONTH’S INCOME. IT FORCES YOU TO PLAN AHEAD & THINK STRATEGICALLY ABOUT HOW YOU WANT TO SPEND YOUR MONEY.

 

6) THE OPPOSITE OF A BUDGET, BUDGET: IT’S NOT EXACTLY A BUDGET, IT’S MORE OF A PHILOSOPHY, BUT IT STILL INVOLVES TRACKING YOUR SPENDING. INSTEAD OF WORRYING ABOUT HOW MUCH YOU SPEND PER CATEGORY, YOU SPEND BASED ON YOUR VALUES, & CUT EVERYTHING ELSE OUT.

 

THIS “BUDGETING” METHOD IS GOOD FOR THOSE WHO ARE ALREADY FRUGAL, DISCIPLINED, VERY AWARE OF THEIR SPENDING & THOSE WHO NATURALLY LIKE SAVINGS. THIS METHOD ISN'T FOR SOMEONE NEW TO MONEY MANAGEMENT BECAUSE THEY NEED TO LEARN THE BASICS OF MANAGING MONEY WELL FIRST.

 

WHEN YOU’RE SPENDING ON NEEDS & MINIMAL WANTS, ALL THE WHILE STILL HEADING IN THE RIGHT FINANCIAL DIRECTION, THERE MIGHT NOT BE A NEED FOR A STRICT BUDGET. HOW THIS WORKS IS YOU HAVE TO HAVE A BASIC OUTLINE FOR WHAT YOU'RE ALLOWED TO SPEND ON, YOUR CORE VALUES & ANYTHING THAT FALLS OUTSIDE THAT DOESN’T GET PRIORITY. THAT DOESN’T MEAN GO ALL OUT & SPEND LIKE CRAZY. BE RESERVE WITH IT, FOR EXAMPLE, FIND WAYS TO SAVE; RESEARCH PRICES, USE COUPONS & LOOK FOR SPECIALS. THE KEY IS TO KNOW HOW TO KEEP YOUR SPENDING IN CHECK. ARE YOU READY TO START BUDGETING YET?

 

NOW HAVE 6 DIFFERENT METHODS TO CHOOSE FROM AND THERE ARE MORE OUT THERE. REMEMBER THAT YOU CAN CHANGE YOUR PLAN AT ANY TIME TO SUIT YOUR FINANCIAL SITUATION. A BUDGET SHOULD BE FLEXIBLE.

 

UNDERSTAND THE BUDGETING PROCESS: CALCULATE YOUR NET PAY INCOME: IF YOU GET A REGULAR PAYCHECK, THE AMOUNT YOU RECEIVE IS PROBABLY IT, BUT IF YOU HAVE AUTOMATIC DEDUCTIONS SUCH AS A 401(K), SAVINGS, HEALTH & LIFE INSURANCE; ADD THOSE TOTALS BACK IN TO GIVE YOURSELF A TRUE PICTURE OF YOUR SAVINGS & EXPENSES. IF YOU HAVE ANY OTHER TYPES OF INCOME FROM SIDE HUSTLES, SUBTRACT ANYTHING THAT REDUCES IT, SUCH AS TAXES & BUSINESS EXPENSES.

 

CHOOSE A BUDGETING PLAN: (WHICH WE JUST COVERED) ANY BUDGET MUST COVER ALL OF YOUR NEEDS, SOME OF YOUR WANTS & THIS IS IMPORTANT; SAVINGS FOR EMERGENCIES & THE FUTURE. TRACK YOUR PROGRESS: RECORD YOUR SPENDING OR USE ONLINE BUDGETING & SAVINGS TOOLS. AUTOMATE YOUR SAVINGS: AUTOMATE AS MUCH AS POSSIBLE SO THE MONEY THAT YOU’VE ALLOCATED FOR A SPECIFIC PURPOSE GETS TO THE APPROPRIATE ACCOUNTS WITH MINIMAL EFFORT ON YOUR PART SO THAT THEY WILL NOT MESS UP THE BUDGET.

 

REVISIT YOUR BUDGET OFTEN: YOUR INCOME, EXPENSES & PRIORITIES WILL CHANGE OVER TIME. ADJUST YOUR BUDGET ACCORDINGLY, BUT ALWAYS HAVE ONE. IF YOU'RE STRUGGLING TO STICK WITH YOUR PLAN, TRY THESE BUDGETING TIPS.

 

1) START AN EMERGENCY FUND. TRY TO SAVE UP 6-12 MOS OF LIVING EXPENSES. START WITH A MINIMUM OF $500 ENOUGH TO COVER EMERGENCIES & REPAIRS; THEN BUILD FROM THERE. YOU’LL SLEEP BETTER KNOWING YOU HAVE A FINANCIAL CUSHION.

 

2) MATCH ON YOUR 401(K). GET THE EASY MONEY FIRST. FOR MOST PEOPLE, THAT MEANS TAX-ADVANTAGED ACCOUNTS SUCH AS A 401(K) IF YOUR EMPLOYER OFFERS A MATCH, CONTRIBUTE AT LEAST ENOUGH TO GRAB THE MAXIMUM. IT'S FREE MONEY. EVERY $1,000 YOU DON’T PUT AWAY WHEN YOU’RE IN YOUR 20S COULD BE $20,000 LESS YOU HAVE AT RETIREMENT.

 

3) BAD DEBT. ONCE YOU’VE ESTABLISHED THE 401(K) IF AVAILABLE, GO AFTER BAD DEBT: HIGH-INTEREST CREDIT CARD DEBT, PERSONAL & PAYDAY LOANS, TITLE LOANS & RENT-TO-OWN PAYMENTS. ALL CARRY INTEREST RATES SO HIGH THAT YOU END UP REPAYING 2 - 3 TIMES WHAT YOU BORROWED. IF EITHER OF THE FOLLOWING SITUATIONS APPLIES TO YOU; CONSIDER OPTIONS FOR DEBT RELIEF, WHICH CAN INCLUDE CREDIT RESTORATION, A DEBT MANAGEMENT PLAN OR LAST RESORT BANKRUPTCY:

 

• IF YOU CAN'T REPAY YOUR UNSECURED DEBT — CREDIT CARDS, MEDICAL BILLS, PERSONAL LOANS — WITHIN FIVE YEARS, EVEN WITH DRASTIC SPENDING CUTS.

 • IF YOUR UNPAID UNSECURED DEBT, IN TOTAL, EQUALS HALF OR MORE OF YOUR GROSS INCOME.

 

4) SAVE FOR RETIREMENT. ONCE YOU’VE CLEARED UP THE BAD DEBT, THE NEXT TASK IS TO GET YOURSELF ON TRACK FOR RETIREMENT. SAVE 15% OF YOUR GROSS INCOME; THAT INCLUDES YOUR COMPANY MATCH, IF THERE IS ONE. ONCE YOU HIT THE CONTRIBUTION LIMIT ON THE IRA, RETURN TO YOUR 401(K) & MAXIMIZE YOUR CONTRIBUTION THERE.

 

5) EMERGENCY FUND. REGULAR CONTRIBUTIONS CAN HELP YOU BUILD UP 3 - 6 MOS. WORTH OF LIVING EXPENSES. YOU SHOULDN’T EXPECT STEADY PROGRESS BECAUSE EMERGENCIES CAN HAPPEN, BUT AT LEAST YOU’LL BE ABLE TO MANAGE THEM.

 

6) DEBT REPAYMENT. THESE ARE PAYMENTS BEYOND THE MINIMUM REQUIRED TO PAY OFF YOUR REMAINING DEBT. IF YOU’VE ALREADY PAID OFF YOUR BAD DEBT, WHAT’S LEFT IS PROBABLY LOWER-RATE, OFTEN TAX-DEDUCTIBLE DEBT (SUCH AS YOUR MORTGAGE). YOU SHOULD TACKLE THESE ONLY AFTER YOU’VE GOTTEN YOUR OTHER FINANCIAL DUCKS IN A ROW. ANY WIGGLE ROOM YOU HAVE HERE COMES FROM THE MONEY AVAILABLE FOR WANTS OR FROM SAVING FOR YOUR NECESSITIES, NOT YOUR EMERGENCY FUND & RETIREMENT SAVINGS.

 

7) YOU! YOU’RE IN A GREAT POSITION IF YOU’VE BUILT AN EMERGENCY FUND, PAID OFF YOUR BAD DEBT & SAVING 15% TOWARDS RETIREMENT. YAY! YOU’VE BUILT A HABIT OF SAVING,

 

DON’T YOU DARE GIVE UP NOW!

 

BONUS NUGGET!

 

HOW TO ORGANIZE YOUR FINANCES IN TIMES OF DISASTER

 

WHEN IT COMES TO PREPARING FOR  EMERGENCIES ESPECIALLY SINCE COVID-19, FINANCIAL READINESS IS AS IMPORTANT, JUST LIKE HAVING A FLASHLIGHT WITH FULLY CHARGED BATTERIES. LEAVING YOUR HOME CAN BE STRESSFUL, BUT KNOWING THAT YOUR PERSONAL & FINANCIAL DOCUMENTS ARE UP-TO-DATE, IN ONE PLACE & PORTABLE CAN MAKE A BIG DIFFERENCE AT A VERY STRESSFUL TIME.

 

MAKE A LIST OF YOUR PHYSICAL ITEMS, DOCUMENT THEM WITH VIDEO OR PICTURES, USE YOUR MOBILE PHONE. THIS CAN HELP IF YOU MUST FILE INSURANCE CLAIMS. NEXT, GATHER OTHER ESSENTIAL DOCUMENTS & INFORMATION, SUCH AS: SOCIAL SECURITY CARDS, HEALTH INSURANCE CARDS, & A LIST OF PRESCRIPTIONS, INSURANCE POLICY NUMBERS & CONTACT INFORMATION FOR THOSE COMPANIES, COPIES OF IMPORTANT FINANCIAL & FAMILY RECORDS, INCLUDING DEEDS, TITLES, WILLS, BIRTH, ADOPTION, & MARRIAGE CERTIFICATES, PASSPORTS, MILITARY RECORDS, EMPLOYEE BENEFIT & RETIREMENT DOCUMENTS. (IF APPLICABLE). WILLS, KEEP ORIGINALS IN A SAFE DEPOSIT BOX OR ASK YOUR ATTORNEY TO KEEP THE ORIGINAL.

 

OWNERSHIP RECORDS FOR YOUR HOME, CARS, RVS, OR BOATS, CONTACT INFORMATION FOR YOUR CREDITORS, A LIST OF BANKS, LOAN, CREDIT CARD, MORTGAGE, DEBIT & ATM, & INVESTMENT ACCOUNT NUMBERS. BACKUPS OF THE FINANCIAL INFORMATION YOU KEEP ON YOUR COMPUTER, INFORMATION ON YOUR PETS: MEDICAL, PRESCRIPTION & VACCINATION RECORDS, ALONG WITH CURRENT PHOTOS & ID CHIP NUMBERS, IN CASE YOU’RE SEPARATED.

 

HOW WELL DO YOU UNDERSTAND BUDGETING?

 

USE OUR BUDGET TRACKING SHEET TO GET YOUR FINANCES IN ORDER AND PREPARE FOR HOMEOWNERSHIP!