Many people think they don't know how to budget. But the problem is many people have been taught to budget the wrong way.
For example, here is a conversation we often have at Fiscal Fitness:
Kelsa: "Have you tried to budget before?"
Client: "Yes, I wasn't very good at it."
Kelsa: "What did that process look like? What exactly did you do?"
Client: "I downloaded a worksheet from the internet that lists your income for the month and then your expenses, but it didn't work. I'd get to the end of the month, and it never went as planned. I couldn't do it."
Kelsa: "You mean something like this?"
Client: "YESSS! It didn't help. It's so hard to budget. "
But the problem isn't our clients.
It's the traditional budget. The traditional budget fails 80% of the time. Eighty percent! Most people have tried making and sticking to a budget at some point in their life. And there is no shortage of "helpful" templates online. If you google "budgeting template" you will get more than 18 million results, most with some version of the same worksheet above. It's a shame because this version of budgeting does not work for most people even though it is the way most commonly taught.
Don't Budget Like a Corporation
This budget is not designed for how we live our lives. We don't get paid on the first of the month and then immediately pay for all of our groceries, pay all of our utilities, and take out all the cash we need for the entire month. That is not how life works. Yet it continues to be pushed as a solution by financial professionals even though it's the wrong tool to solve people's budgeting problems. We have a better way. At Fiscal Fitness, we have created a budgeting system that mirrors the way you live your life. It has helped hundreds of our clients achieve peace of mind and clarity with their money.
Budget Like You Live Your Life
Your budget should work for you based on the timing of your life. The most important factors in successful budgeting are not a starting and ending point each month - they are the actual dates you get paid and the dates your bills are due. This is the basis of the Fiscal Fitness Phoenix Budgeting Method. Our three-step process will have you thinking differently about how to budget and hopefully, seeing a better way.
Ready to get started? Great! All you need to do is follow the tutorial below.
Step One: Get Organized
Before you can create a useful budget, you need to know the numbers. It’s likely you have a number of expenses that are fixed. They occur every month, have a set due date, and are the same amount each month (or relatively close). Most people refer to these as their bills - things like mortgage and utilities, car payments, minimum payments on debts, but also Netflix or Hulu, and even possibly a gym membership.
Are you keeping these in your head or do you have these bills written down somewhere? I want you to get these out of your head. Write them down. You’ve got so many more important things to think about! Make a list of all your bills that include:
- the bill description
- the amount
- the due date
But make sure this list is organized by due date! Unlike traditional budgeting, you’re not going to list your bills by highest to lowest dollar amount.
Organizing your bills by due date helps you see the timing of when they will need to get paid, giving you a more realistic amount in your bank account at any given time. On payday, you’ll be able to glance and see exactly what needs to get paid between now and your next paycheck.
It seems simple. Almost too simple. But that’s good. We want to help you gain clarity about your finances and organizing your expenses this way is a simple way to do that.
Step Two: Create a new Spreadsheet
You do not need to be an excel wizard or even own excel to complete this step, so don’t let either of those things stop you. If you share finances with another person, we recommend creating this new spreadsheet either in a Google drive or making an excel file that can live on a shared drive.
We fully recognize that in most relationships one person is the money one (hence our podcast "The Saver and The Spender"), but having a spreadsheet that is accessible to both parties helps keep everyone on the same page. We always encourage couples to try to stay on the same page when it comes to their finances.
Step Three: Create Your New Budget
Now comes the fun part - filling in the new spreadsheet with your new budget.
List your next three pay dates and the amounts of each paycheck at the top of each column. The first line of each new column is going to be the amount of your paycheck. The next line in the first column will contain your current bank account balance. After that, you’ll list all of the bills that will fall between the first paycheck and the next. Remember, you’ll list them in date order, not by amount. After you’ve listed your bills, you’re going to list the amounts of the recurring expenses you have each month, like groceries and gasoline. These are your expenses that are not a fixed amount and due on a fixed date each month.
When you’ve listed all of your bills and recurring expenses, total up the amount at the bottom of that column. The number there represents what should be left in your bank account before your next paycheck.
You’ll do the same for the next column - listing and adding up all of your expenses - but the second row total in the second column won’t be your current bank total. It will be the total at the bottom of the first column. Repeat this for the third column as well.
At this point, you’re most likely looking a month out and seeing the amount left over increasing slightly.
Keep In Mind: Ways to be Successful
Budgeting this way will take a little getting used to. We are sure you can get the hang of it, but here are a few ways to help you catch onto this new way of budgeting even quicker:
- Take out cash once per pay period for day-to-day spending and groceries. Are you someone who never carries cash? Don’t worry. We have a few tips for the best ways to use cash.
- Overestimate your bills. This is an easy way to end up with more money at the end of the month than you expected. If your water bill fluctuates between $120 and $150, always pick the $150. If your car registration is coming due but you're not sure the exact amount, estimate high. If you budget this way, you give yourself padding should everything come in on the high end.
- Set goals for your extra money. Be intentional with whatever you have in excess. If you see it as free money, you’ll be more likely to treat yourself to something than use it as a tool to achieve your larger financial goals ever sooner. This is a great way to help you pay off debt.
- Extend your budget for at least three months. You need to see this far out to really get a handle on what you are spending and the ebbs and flows of your budget. Not every month has the same expenses, so budgeting this far out will give you a clearer picture overall than just a month’s worth of bills and paychecks.
- Avoid adding extra expenses or increasing spending amounts after the month has begun. We know expenses sometimes creep up, but by overestimating your expenses and account for all known bills, your surprises should be minimal. And if you find you are routinely going over the amounts you set or are constantly upping them midway through the month, up the amounts. Remember, you are trying to be realistic about your spending.
A Better Way to Budget
Different, right? In this case, different is definitely better. When you budget based on when you get paid and when your bills are due, you are less likely to be surprised. You will never have that moment where you realize three major bills are due and you still need money for groceries. Yes, you will still use a spreadsheet like in traditional budgeting, but one that works with your unique situation in mind, not the assumption that you get paid your entire paycheck on the first of the month.
We are confident that once you try budgeting the Fiscal Fitness way, you will not go back, especially if the traditional way of budgeting has failed you in the past.
For more budgeting tips and tricks, read some of our other blog posts here or subscribe to the Savvy Spender newsletter. Or if you're ready for a serious budget makeover, click the link below to schedule a free 15-minute mini-session with one of our financial coaches to learn how you can implement the Fiscal Fitness Phoenix Budgeting Method and take control of your finances. You have nothing to lose.
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