The Practical Budget: Introduction (or WHY WE NEED THIS STUFF)

Call it what you want: a spending plan, an income/expenses statement, or even… *GASP* a budget!

So many people need it, yet so few people use one. I didn’t for years. I got on a written budget at the start of the year with my fiancé and it has transformed our lives together. Don’t think you need a budget? Neither did I. In fact, I didn’t think I made enough money for a budget! I get paid every week, I used to pay the bills that are due that week, and then I moved on. Sadly, this is how so many people run their finances, and they don’t make full use of the potential of their money.

A snapshot of a few months ago

We were engaged and panicking. I had just moved back in with my parents and owed my former landlord nearly $1,500 in rent and a mind-numbing amount of fees. I was buried under over $8,000 of credit card debt and tens of thousands of dollars in student loans. My weekly paycheck went to a variety of bills every week, and sometimes I would be left with $15-20 to feed myself for the next seven days. My fiancé worked part-time, covering her bills but any extra expense that came up sent her into a dizzying panic. We were stressed and we found ourselves seemingly at each others’ throats when talking about money. We had a feeling of "treading water": we were covering our lifestyles, but we just weren’t making any progress. We literally never went out on dates because we had no money – we spent our time hanging out in each other’s living rooms watching DVDs.

Oh yeah, and we have a giant wedding coming up in October.

Flash forward to today: our bills are covered comfortably. We have $1,000 in cash in a savings account for emergencies. We have a fund set up (and $100 away from being finished) to cover a security deposit and first month of rent whenever we decide to get ourselves an apartment later this year. We have a hall booked, a limo paid for, a photographer hired, a cake lady booked, music equipment scheduled, and about $1,200 in our Wedding Fund to pay for reservation fees and start building for dinner and the honeymoon (the two biggies). And between the wedding and other debts, we’ve paid off over $8,000 in a little over two months.

Our incomes have both grown – not dramatically, but they are picking up momentum and they continue to grow. Our conversations about money are filled with excitement instead of stress and anger. Our unexpected expenses have been covered every time. I’m eating well and consistently have $30 every week to spend on food. Once or twice a month, she and I go out on a date – last month we went out to a nice dinner and in January we drove to Schaumberg, Illinois to spend the day at the IKEA store (and followed that with dinner). Activities like that would have been unheard-of in December.

We’re about as happy as we can be at this stage in our relationship. Our secret to this wild change of events: in the second week of January, she and I sat down and put together a written budget.

Sounds ridiculous, right? Well, personal finance isn’t just about numbers – it’s about behavior. And putting together the budget has a drastic effect on your behavior. Here are just a few of the psychological benefits we’ve enjoyed since writing down a budget:

Motivation

One of the first things we did was line up all our debts, smallest-to-largest. This is to use Dave Ramsey’s "Debt Snowball" method of paying things off. I’m not going to sit and talk about Dave this whole week, because that would get pretty annoying. But writing down everything that we owe was a giant smack in the face for us. We listed our cars, our student loans, my credit cards, our budgeted wedding expenses, and even our little store credit cards. Whenever we need motivation to keep pushing forward, we look at our Debt Snowball and remind ourselves to keep going. And if you don’t want to do the Debt Snowball, no problem – but line up your debts and take a look at them. It’s imperative that you see exactly where you are financially.

Peace of mind

A few months ago, any time spent in a store would involve my brain imagining a chalkboard with numbers like the one in Good Will Hunting. I had to figure out how much I could spend, how much I needed, where the money needed to go, where I could borrow from, etc. It was a nightmare. Then I would wind up back at home, ready to enter in my receipts, only to discover I didn’t factor in one bill that throws my whole week off. All of a sudden, I’m calling my parents and my brothers to borrow money! Today, I know exactly how much I can spend, and I do it without having to think one bit, because I know everything else is covered.

The antidote to laziness

This goes along with motivation, but remember how I said our income has gone up? I’ve started hitting the phones hard, cold calling during the day to drum up some business while I work second shift 40 hours a week. She picks up extra days at the hospital and added babysitting on Mondays. As business grows and she gets picked up full-time, we’re going to keep bringing in more money. As they say, "The world belongs to those who hustle."

Better health

Having money to eat is a good thing. Having money to eat something that isn’t Ramen Noodles is even better. We get sick less often, and we can’t afford to go to the doctor all the time, so we make sure we are taking care of ourselves. This means cooking basic meals and exercising at least a few times a week. This results in more energy to keep us going throughout this process and we feel better while we do it.

We’re happier

We spend more time laughing and smiling around each other instead of stressing. Our demeanors towards our families and friends are much more pleasant. In summary: we aren’t freaking out so much.

Now, it’s not just the magic of writing down a budget – you have to stick to it, and that can mean a few other things:

It’s humbling. Lining up your debts means taking a good, hard look at yourself and how you’ve managed (or mismanaged) your money over the years. Sometimes that can be a huge wake-up call. Check your ego at the door before you get started with this process.
It’s hard. Guys, this stuff isn’t easy. You have to force yourself into some self-control. That means maybe cooking a little more often than you usually do, or staying in and coming up with creative ways to entertain yourselves instead of blowing money on dates twice a weekend. You need to change how you live your life to get yourself out of the mess you are in.
It involves sacrifice. As I write this, my fiancé and I are in the middle of what may turn into an entire week without seeing each other. We both work this weekend, and we work opposite shifts – she works first-shift, and I work second-shift. By the time I’m done with work, she’s in bed. It can be taxing on us, but we constantly remind ourselves that we are setting ourselves up for success down the road. Plus, weeks like these only come around once in a while, so we know we’re not sacrificing the ENTIRE relationship!

So, all this week, I’ve got secrets to making a budget that’s going to work for you. I’m not going to force a bunch of methodologies on you – these are flexible tips: things you can apply, but in your own way and appropriate for your situation. They’re things everybody needs and can do, regardless of whether or not they think they can. I hope you join me along the way, and heck, bring a few friends or loved ones along with you! If you’ve got some feedback on a tip, drop it in the comments for all of us!