Disclaimer: Although all of you self-employed people were sent to a different Step 1, you may now rejoin the herd for this step.
This one’s a pretty long one, guys, but it’s crucial. The beginning of the month approaches and we must prepare.
In Step 1, we created an expense map.
The goal of Step 2 is to create a budget battle plan. We’re going to recreate the expense map with new numbers, and put a plan in place to help you stick to them.
- Get out the expense map you made in the last step. The first move here is similar to the last move of Step 1. See what’s happening with your money. If you’re reading this series, chances are you’re overspending, or you just want to know how you can save more and spend less money.
- Do you already know what needs to get cut down or eliminated altogether?
- Don’t make drastic cuts that cause you stress. Start small. This is a marathon, not a sprint. You can always cut more next month.
- Now create a zero-sum budget.
- What’s a Zero-Sum Budget?
- A zero-sum budget is a system where you take each dollar you get and give it a job. By the time you’re done putting your money into expense and saving categories, you have not a penny left.
- Every dollar has a job and has been accounted for. There is zero left. There are no rogue soldiers left in the camp; all have been assigned.
- This is how you achieve a great budget, which is best described as, “Telling your money where to go instead of wondering where it went.”
- We will marshal our money and tell it where it must go!
- Congratulations, you’re now allowed to go digital. I use and highly recommend the free version of EveryDollar; it’s Dave Ramsey’s free money-management app (you can also make an account online).
- By now we know our categories; in other words, we know our bills and our recurring expenses.
- You create your expense categories in it and how much is spent on each category, same as in your expense map. EveryDollar will subtract your categories from the income you established in Step 1, and you’ll know when you’ve reached zero.
- Zero’s a fantastic place to be. 🙂 I just feel a real sense of satisfaction when I hit zero on EveryDollar.
- Remember, if you have money left over, you MUST give it a category. Put it in your emergency fund or toward whatever you’re saving for. Don’t think of it as extra splurge money; the result of good budgeting habits is you getting ahead of your expenses and building wealth. That starts with saving.
- Okay, fun’s over. Back to paper. List all of the categories you put on EveryDollar and how much you’re putting into them.
- Now go through them and put a check mark next to the ones you can pay in cash.
- I would like you to try the envelope system this month. I’ve written an in-depth post where I explain what it is and how to do it.
- What do I do with the money I can’t spend in cash?
- A common answer is to make separate bank accounts for these other categories. I’ve never done that and I never will.
- If for some reason you can’t open an account, keep your categories with you at all times (via EveryDollar or paper) so that you know how much you can spend per category and not overspend what’s in the lump of money sitting in your account.
- By this step, you should have already prepared your envelopes and filled them and hopefully opened an account with Simple bank. This next step is about tracking. You MUST track.
- Use the EveryDollar app for this. You can create transactions under each category and even put notes in them.
- By the end of the month, you will have a really clear picture of where your money went and where you succeeded. The paid version imports your transactions automatically because it’s hooked up to your bank account, but I prefer if you do it manually this month at least so that you’re mindful. I’ve been doing this for months and I still use the free version.
- You can also choose to track everything on paper. That’s a good idea as well, as long as you remember to keep that paper with you at ALL times, or you can just create a section for this step in your planner, or get a planner with a section for this purpose.
- You can now rewrite your expense map with all of your categories and their new numbers. On the back of the paper, you can fill out what I talk about below.
- Voila, by the end of this step, your rewritten expense map will have become your budget battle plan.
Some tricks before you go off to battle:
Take time to think about your spending splurges; in what kinds of situations do you find yourself spending too much?
Brainstorm ideas on how to immunize yourself to these situations.
One thing I realized about myself is that I CANNOT go grocery shopping on an empty stomach. If I go and I’m hungry, I return home the proud owner of aisles 4, 5, and 6.
Watch out for the “but there’s a sale!” excuse. If you can, create a “Good Deal” category in your budget. But know that once that money’s gone, it’s gone. If you spend it on a good deal today, you won’t have it for the next good deal that comes along. Sometimes knowing you can buy something mitigates the urge to actually buy it.
See something you want? Snap a picture of it and move on. Buy it next month or when you have the money…chances are you’ll forget all about it! Sometimes it’s more effective to say “later” than “no.”
This works for me really well. Later, when I’m going through my pictures, I’m thinking, “Why did I want that?” and I hit the delete button bwahahaha.
The purpose of this is part of the step is for you to arm yourself before your month begins. Really take the time to identify your temptations and situations you find yourself in where you spend too much.
Come up with alternatives to those temptations and solutions to those situations.
That’s it! You’re ready. When you get your paycheck, you’ll know exactly what to do with it.
If you’re self-employed and you aren’t sure what day you should use as your battle plan day, you can read about the day I chose and a step-by-step on how exactly I manage my money on this day.
Let me know how you do in the comments!
Next step will be a survival guide on what to do if you break your budget…not to sound pessimistic or anything. I just want you to have a guide if it happens. 😉
Check out this spin-off step 3 for a step-by-step guide on exactly how I manage my money.