Ask CU: Budgeting 101 with Professor Karah Sprouse

Start by setting goals for yourself. This is your reason to budget in the first place. Is your goal to minimize or pay off debt? Buy a car? Buy a house? Save for a trip or other reason? Budgeting takes discipline. It’s not hard to understand but it is hard to practice. If you don’t have a real reason to budget and an end goal for doing so, it’s hard to find the motivation to do it and stick to it. (It’s like diet and exercise – if you don’t have goals or a reason for these disciplines, they won’t last long).

A budget requires a written/documented plan. Budgeting is not having an idea of what you want to spend in a month and logging into your online bank account to look at transactions.

Use a program like Microsoft Excel so that you can easily document and edit budget categories, planned spending for each category, and enter formulas to see how everything adds up.

For budget categories, you’ll first want to identify “wants” vs. “needs” and prioritize the needs first in your budget

  • Needs are food, shelter (rent/mortgage), utilities, transportation, school expenses, healthcare, clothing, etc.
  • Have a line item for other bills as well (car payment, medical bills, etc.)
  • No one can go forever only buying what is absolutely necessary, so plan “wants” into your budget too. I call this part of my budget “fun money” which is the amount set aside for things/experiences that are fun/happy/bring joy/relaxing etc.(examples: shopping, video games, night out with friends, etc.)

Budget on a monthly basis: have a monthly spending amount allocated per budget category.

It’s also important to include a category in your budget for an emergency fund. Financial guru Dave Ramsey recommends $500 in a savings account if you make less than $20k per year and $1000 if you make more.

Try to establish this emergency fund as soon as possible. Having this set aside allows you to keep moving forward with your budget and not go into debt over things like blowing a tire, an unexpected bill, etc.

If you want to set up an emergency fund quickly, here’s an idea to get you started: Sell some things you aren’t using anymore on eBay, Craigslist, Poshmark, Facebook Buy, Sell, Trade pages, etc. and put that money directly into the fund. 

In times like the one we are living in now, an emergency fund could offer a cushion of relief for someone who is unable to work during social distancing and safer-at-home practices.

Once you have a written plan, utilize Dave Ramsey’s “envelope system” to hold yourself accountable for only spending the budgeted amount in certain categories. This helps you not accidentally overspend in categories and realize it once it’s too late. 

We all know how little transactions can add up and sneak up on us. We can swipe debit and credit cards for little transactions and not realize how much they are adding up. With cash, you have a much easier time seeing what you are spending and how much is left for that category. How it works:

  • Create individual, labeled envelopes for spending categories and put cash in each envelope. Depending on how often you are paid, you may want to pull out cash for envelopes weekly, every other week, or monthly. 
  • Example: if you have budgeted $400 for groceries, pull that money out of your bank account in cash and place it in an envelope labeled “groceries.” You may pull $200 for the envelope at the beginning of the month and the other $200 mid-month depending on your pay cycle
  • Depending on how you pay your bills, you’ll want to have cash allocated for rent, electricity, water, and other bills that you do not pay online too
  • Other ideas for envelopes: eating out, shopping, savings, gas, gifts, fun money, child care, etc.

If your planned budget doesn’t work right the first try, don’t worry. It usually takes at least 3 months for you to get a budget that really works. Do not expect to get it perfect in the first few tries. There will be categories you forget or allocate too little or too much for. This is normal. Just keep adjusting and making it better and do not get discouraged.

While we are practicing social distancing and staying safe at home, it can be easy to look at the amount of money you’ve spent in certain categories and quickly learn that you can live with much less. So take this time to develop a new perspective on the importance of budgeting, what we really need, how much we should spend, and the importance of saving after this entire experience. 

If you work in a restaurant and were laid off due to COVID-19, here’s an app where you can apply to receive $500.

If you are looking for work, these places are currently hiring.

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