Budgeting can be so daunting! It’s the dreaded B word. At my house, it once was as offensive as a cuss word! Please don’t fear. It is actually a really good thing. There is freedom in a properly written budget. You may be confused on some lingo when it comes to budget making. Questions you may have if you are new to this whole getting out of debt thing. What is a zero based budget? What is a sinking fund? What is an envelope system? What to do when there is an emergency? Well, y’all, I have some answers for you that hopefully will give you some hope!
What is a zero based budget?
A zero based budget is a plan that gives every dollar of your earnings a job.
Every dollar has a name to it. Nothing is left over, hanging around doing nothing. There is a free app called EveryDollar you can get. It’s awesome! I like to play around with it but I still prefer the good old pen and paper. Call me old fashion.
What is a sinking fund?
A sinking fund is money saved in an account or envelope that is used for a specific future purpose. People, Christmas is NOT an emergency! Your emergency fund is NOT for things you know are to come. Christmas would be a great sinking fund. Set aside money each month for it. Say you want $600 for Christmas this year. That means you need to save $50 a month for the next 12 months. Or if you have a later start, and say you don’t start saving until June. You have 6 months to save $600 so you would put $100 each month in a separate account or envelope. Customizing your budget will lead you to success. Every household is different. Say you are going to be a bridesmaid in your friend’s really fancy wedding…Yikes! The wedding is in 3 months. Calculate how much the dress is going to be, hair and makeup, travel expenses, extra food, gift, and money for bachelorette party. Then divide it by 3. That’s how much you need to save in the next 3 months. Other examples of sinking funds:
- New car
- Car repairs
What is the envelope system?
Umm…your new best friend! Haha. Seriously though, the envelope system makes budgeting simple. You take a bunch of envelopes or in my case, index cards and paper clips, and write the category on it. ( The clip system is the same as the envelope system. You just use clips instead of envelopes to separate the money.) Put money in each envelope that you use cash for. We use the envelope system for none automatic withdraw expenses. So groceries, entertainment, toiletries, personal spending money etc. are great categories for the envelope system. You should never have to swipe your card unless you choose to keep your gas in the account…it is way easier, I have to admit.
Once the money is gone, then its gone. No more looking at your bank account and trying to figure out if you have overspent on groceries. Just look in your envelope. Want to get a latte? Look in your entertainment envelope. Is there enough money? Yes. Score! Latte time! If there is no money left, you can’t get whatever until next pay period. I usually keep a few categories of clips & index cards in my wallet at all times. Ones I use all the time are my personal spending money and groceries. Others, I keep at my house in a safe place. However you want to organize your money, it doesn’t matter! Put your own flare to it!
What to do if there is an emergency?
You should always have $1000 in the bank for emergencies. This is baby step 1 in Dave Ramsey’s program. No credit cards! We are getting out of debt, not gaining more. If you are not familiar with the baby steps, I recommend reading The Total Money Makeover. You can get it at almost any library or listen to the autiobook free on YouTube. He has a radio show too. You can also listen to it on YouTube if you don’t want to be tied down to a radio or time.
Where to start?
Get out all your bills. Calculate your total debt. Write it down. Then, figure out your monthly budget. How much does each bill cost every month? How much is rent? Utilities? Gas? Car? Groceries? Look at your bank account and calculate how much you spend on stuff every month. The answer may surprise you. Find a budget sheet online and print it out. You can find a plethora of free budgeting tools online. And don’t forget to check out the EveryDollar app. You can do your budget every month right on your phone!