A few weeks ago, I wrote a blog post about why we decided to get debt free. I found Dave Ramsey through some other podcasts I listen to, and once I started listening, I was hooked. David and I have been working our way through Financial Peace University – essentially a class about how to get out of debt and build wealth.
The first lesson of FPU is about living on a budget. The word “budget” gets such a bad rap, and I have to admit, even now it sometimes makes me cringe. There are so many negative connotations when you hear the word “budget” – mainly that you can’t afford something or that you’re cheap and don’t want to spend your money.
However, since taking FPU, we have started thinking of living on a budget in a completely different way. In fact, now we kind of get excited about setting our budget each month – kind of. 🙂 We also challenge ourselves to actually stick to the budget, and in the five months we’ve been planning out our spending, we’ve gone over budget twice. It’s harder than you think! FPU reminds you that having a budget gives you permission to spend money, which is a nice way to look at it
How We Set our Budget Each Month
With our FPU membership came a year long subscription to the EveryDollar Budget app. I’ve used budgeting apps before, but this one is beyond any I’ve seen. You can connect it directly to your bank account and each time a charge appears, you simply drag and drop it to the spending category.
Before each month starts, we plan our budget down to the dollar. First, we list all of our income first. Since my income can be a little unpredictable, we always round down, that way we don’t go over budget, and if we have a little extra at the end of the month, we can put that towards debt!
Speaking of debt, this is usually the next budget item on the list. We list our debt payments and assign them the dollar amount we plan to pay. We know this is money going out the door that month, so might as well take it off the top!
Next, we list our other payments including cell phones, electricity and internet. We count these under “living expenses” because they are necessary to live! Other fixed costs each month include childcare, our gym membership and some business expenses.
Next we assign a dollar amount to gas and groceries. These tend to stay roughly the same each month except if we know we need an oil change or something like that. For instance, when we were in the Adirondacks in July, our grocery budget was lower because we knew we wouldn’t be buying groceries while we were there. (That money was assigned elsewhere in the budget).
Our next category is any one time expenses that we may have that month like property taxes, any fees associated with preschool, haircuts, money for birthday gifts, etc.
We then give ourselves and the kids some spending money – even Juneau gets a category, although he usually spends all his money on treats. We find that by giving ourselves a limit of spending money each month we don’t feel guilty about buying things we may want, but it also keeps us in check. This item is last on our list because it’s usually anything extra we may have. It’s nothing crazy (the kids get $25 and we each get $100) but we think it’s a necessary category to have!
How We Manage Our Budget
The great thing about the EveryDollar app is that you can update it every single day and you can adjust as the month goes on. For instance, if we notice we are going to be way short of our gas budget for the month, we can move that little extra to our debt snowball and get ahead on those payments.
David and I discuss our budget before each month begins and then check in every week or so. Now that we are a few months in, things tend to stay the same from month to month so it’s not necessary to adjust as much as it was when we first started.
To be honest, we weren’t very good at sticking to our budget at first! But just like anything, we had to do it for a while to become good at it. We like to give ourselves a little grace, and as long as we are paying off the debt that we planned to each month, we tend to think of that as a success!