Finances 101: Understanding Your Budget

Money is a tough topic in our world, especially for parents.  Between diapers, baby food, toys, doctor visits–including dentists and optometrists–and medical bills, and all of the continuing expenses of raising a child, it feels like we parents are almost being driven to bankruptcy or being bled dry.  Many of us try to cut back on expenses, but it can be overwhelming to know where to start.  It’s even more difficult as a Stay-at-home-mom.

SAHMs like myself can tell you that nothing irks us more than hearing “It must be nice to have enough to stay at home.”  I am not independently wealthy.  My husband does not have a high-paying job.  He makes nowhere near six figures, and his income would have most wondering how we can survive.  So, how do we make it work for us: a manager and a SAHM?  Easy: we budget.

It takes time to set up a monthly budget, like an hour a month and a couple of discussions per week to maintain it, but it is worth it in the end.  And it isn’t rocket science, nor does it take a Finance degree to figure out numbers.  My husband and I have managed by looking at the numbers and making our budget work for us.  We have made sacrifices, and we have found ways to stretch our dollars.  So, how does one set up a budget?

First, you need a pen, some paper, and access to your bank accounts and credit cards.  This part takes the longest, but it really helps.  You need to write down where your money goes and where you spend the most for an entire month.  Every trip to Starbucks.  Every purchase at Babies R Us.  Every dollar and every cent must be written down.  Include your credit card purchases if you have them.

Once you have all of that listed out, then figure out how much you are spending on each section of your budget.  If you spend money regularly at one location or in one area of your budget (such as groceries), then I recommend choosing that place or cost and adding every line item found in your expenses at once.  For instance, if you go to Starbucks every morning, then add up every instance of Starbucks from your expenses until you reach the end of the month.  If you go grocery shopping every Sunday, then add up every grocery trip you see.

Now, here’s the hardest part: once you have calculated where your money goes, evaluate if it’s the best use of your money.  This part is hard because when every expense is listed, you may find yourself shocked with where you spend the most.  The first time I ever did a budget, I learned that I was buying lattes at least once a day, sometimes twice or three times a day.  It was a very expensive habit to the tune of $350 a month.

Once your heart attack is over, reevaluate your expenses.  Separate out the “needs” from the “wants”. Your “needs” will be expenses like Rent/Mortgage, Utilities (more on this later), Food/Groceries, Medical/Health Insurance, Car Maintenance, Car and Homeowner’s/Renter’s Insurance, Baby/Child Care, etc.  Your “wants” will be items like Starbucks, restaurants/dining out, trips to Sephora/Ulta, nail salon visits, consumer shopping (such as Kohl’s, Macy’s, etc), music, and other similar purchases.  Your wants will be where you spent money that wasn’t vital to your household maintenance nor to their health and well-being.

After this step, set a working budget, starting with your “needs”.   These should always be paid first.  Figure out how much each item should cost and list that amount.  The good news about this part is that most of these won’t change on a monthly basis.  Your rent will stay basically the same for the duration of your tenancy, as will your mortgage. Your health insurance isn’t likely to increase unless you are adding another member or your company changes providers, if applicable.  The one expense that may change from month to month will be your grocery bill, especially if you frequently dine out and decide to eat at home more often.  But, the important part of this step is to allocate for these expenses in your budget first.  Now, add up the total net income (or the amount paid after taxes) and subtract your expenses from that.

Next, figure out how much of your income you have left after your “needs” are paid.  Once you figure out that amount, start accounting for where to allocate those funds among your “wants”.  I know a lot of us moms would say that Starbucks/coffee is a “need” rather than a  “want”, but it is possible to live without that expense.  After three years of budgeting, I am down to $50 a month for Starbucks, and that includes my husband’s trips too.  I take him Starbucks about once a week, primarily as an excuse to visit him on long days at work, and I get a smaller coffee for myself since I have drastically reduced my caffeine intake since my pregnancy.

While I would love to say that you can now cut down all of your spending habits to practically nothing overnight, it simply isn’t true.  It has taken me almost four years to cut my Starbucks habit from my budget, or at least make it manageable.  One way I managed this, though, is that I set a goal for myself that I would frequent Starbucks less often, and I stuck to that goal.  I also stepped up my goal on a regular basis.  I started by saying that I would only go once per day, then–after six months–to five times per week (or working days only), then–after another six months–to three times per week (and I took coffee from home the other days instead), and so on.

It is not believable to cut all “wants” from your budget, but it is manageable to cut back on these expenses a little at a time.  And when you do, I highly recommend that you use those newly available funds to set up an emergency fund and pay off your debt, if you have any.

Now, I learned this technique and about budgeting from financial guru Dave Ramsey.  I highly recommend taking part in his Financial Peace University course to everyone.  I want to make this very clear to my readers: I am not being paid to endorse Dave Ramsey, nor will I ever be.  Those that put on the FPU classes are not paid; they are volunteers.  I know because my sister now teaches the class, and she signed up for it.  The class costs $100 per couple, but those funds go toward your FPU packet, which includes Dave Ramsey’s book Dave Ramsey’s Complete Guide to Money, a Member workbook, an envelope system, Financial forms, and a set of his FPU cds.  The entire packet is worth about $100 itself, and the class is very helpful in understanding debt and budgeting.  It’s a nine week course held at churches nationwide, and it takes place one evening a week.  It isn’t very difficult, and there are no grades given, but it is a life-changing class to take.  For more information, visit his website at daveramsey.com

Finally, the most important step to your budget: stick to it.  You can do it!  It isn’t easy, and you do slip up in the first few months.  But it is definitely worth it.  Just remember to go back over your budget every month and frequently discuss it with your spouse/significant other.  The number one cause for divorce in America is debt, and maintaining a budget together is just one way to prevent from being another statistic.

Until next time, I remain your faithful blogger,

-BBM

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