For the longest time I lived paycheck-to-paycheck. Sometimes that paycheck seemed to last me a matter of hours before I felt “broke” again. I would get that sweet influx of money only to pay bills, if I could, get a bit to eat and then it was gone. Can anyone relate? I really hate that feeling! So today I’m going to teach you how to start budgeting so you break the cycle.
How to start budgeting step 1: Subtraction
Many people fail at budgeting because they assume if they just made more money, they wouldn’t have money problems. FALSE. If our income increases so does our lifestyle. This why you can get a raise and still have no money.
The first thing you need to know to start budgeting is to subtract. If you are serious about wanting to get ahead then you need to subtract all things you can do without. Cable? Out of here. Massage subscription? Time for a break. Anything you can eliminate for a period of time – do. Now this won’t last forever but if you want to get ahead you need to free up more money.
Once you’ve eliminated all you can (I know it’s hard), then it’s time to reduce anything that’s left. Call and negotiate lower payments, shop for car insurance again. Whatever you can do to make the monthly amount go down. For tons of tips on how to reduce your monthly bills check out this loaded post here.
Start budgeting step 2: Addition
Now that you’ve reduced your monthly output all you can, it’s time to see if there are some creative ways to add more income to this equation. Here’s a few ideas to get you started:
- Join a rideshare service and put in a few hours each week
- Rent out your spare room or basement for 6 months – this could be worth several hundred a month ($400 per month x 6 months = $2400!)
- Grocery shop for a shopping delivery service like Instacart
- Review your tax deductions (hint: if you are getting a huge refund of all your money at tax time you should reduce your withholdings so you have more money throughout the year)
- Offer to swap services with someone – offer to clean someone’s house for a haircut/create a brochure in exchange for an oil change… you can get very creative here
- Sell a bunch of stuff on Facebook marketplace, EBay or Craigslist – you can make a bundle!
How to budget step 3: Total up
Once you’ve subtracted and added, it’s time to see how much money you’ve freed up. The key is to add it up and then give it a purpose. Don’t just assume you’ll start saving more if you don’t specify exactly what the money is for. You will spend it. You will eat out, treat yourself to something nice. I get it. I do it too! Be specific about your goal here – stop living paycheck-to-paycheck.
How to set up a budget step 4: Planning
Everyone should have three goals for their savings plan:
- Savings for the known
- Debt Reduction
- Something fun
Let’s break these three areas down a bit more.
- Saving for the known – this is Christmas, new tires, birthday presents, back-to-school, the fact that your car WILL crap out one day and you want to be prepared, appliances (those crap out too!). These are all KNOWN things we often treat as something unexpected. None of these things are a surprise – we know they happen so let’s save for them! This key area makes the difference between living one paycheck at a time and having money on hand when life happens.
- Debt Reduction – one of the often overlooked benefits of reducing debt is it frees up more money in your budget!! Once you knock those payments out then you have more money to save and/or do fun stuff with! It’s worth putting some extra towards to make this happen sooner
- Something fun – If you don’t have something fun to look forward to it’s harder to reach your goals. I like to save for vacations because I LOVE vacations. But it could be something smaller, like a pedicure, massage, a trip to the beach, whatever. Just put some money away as a reward for yourself.
Set up a budget step 5: Have a system
Having a plan for your money is not enough. In order to reach your goals you need to make it as EASY as possible to achieve them. If you are like me, easy means it works without me having to do anything or even think about it.
This is where automatic transfers come in. Once you determine your goals and you know how much you are going to set aside every month (If you need help I have a whole post about the specifics of the calculations right here), then you need to set up an automatic transfer every payday.
Every single payday you should be setting aside the same amount, so go into your online banking (you are online banking right??) and set that amount up to go into savings as soon as your paycheck hits your account. It is really important to make sure the money “disappears” from your checking account you use to pay bills with as soon as possible after getting paid. This way you aren’t tempted to spend it.
Breaking the paycheck-to-paycheck cycle:
Once you have some money saved, some debt paid down and some money to have fun you are on your way to breaking the paycheck-to-paycheck cycle. One last thing before we go, the goal is to have money available when life happens and your bills come due. It doesn’t mean you have random amounts of money leftover in your checking account. Every $ will have a job, it just may be saving for home repairs instead of sitting in your checking account looking available for Chinese takeout.
You can learn more about how to start budgeting by checking out the FREE budgeting template below (and there’s a sweet deal if you sign up now!)