The First Step to Managing Your Money Better

If we look at the scope of life there’s a few mainstay pillars that are consistent in individuals. These pillars are areas most of us focus on or which impact us greatly. I, personally, would categorize them like this:

  1. Spiritual

  2. Family

  3. Career

  4. Finances

  5. Health

I’m willing to bet that every decision you make (good or bad) on a daily basis has one of these five pillars in mind. The lifestyle we live, the clothes we wear, the jobs we work, and the values we have are all by-products that show how these five areas are progressing in our lives.

With a new year always comes new goals. There’s a good chance you have a goal pertaining to one of these five pillars:

  • I want to go to church a couple of times this year. I want to learn more about what follows this life.

  • I want to start a family or take a next step in a personal relationship.

  • I want to earn a promotion, change jobs, etc.

  • I want to go to the gym or simply stop drinking soda.

  • I want to handle my money better.

Each goal will differ per person, yet the reality is the same. The only way you and I will attain any goals is by self-discipline. If I want to grow closer to God, I have to read His Word and talk to Him. If I want to become physically fit, I need to go to workout.

If you want to manage you money better, you need a budget. There’s no other way around it. In my experience, most people are intimidated by budgeting simply because it appears as a difficult undertaking. Budgeting is a process and requires discipline like everything else.

With that in mind, I don’t want to tackle the entire budget process — just the first step. The first step is simply figuring out where your money is going. An effective budget tells your money where to go, so it’s imperative to layout all income and expenses.

Let’s find out what you’re spending!

Grab a notepad and pen (like I do) or open a document on your computer and let’s get to work:

Step 1 - Add your total monthly net-income (excluding taxes, etc.).

Step 2 - Categorize all your expenses. (I’ll explain below)

Step 3 - Add up all expenses. (I mean everything. Everything you spend your money on)

Step 4 - Find the percentage.

Monthly Income ÷ Monthly Expense x 100.

Step 5 - Open Microsoft Word — click Pie Chart. Input data.

Below is our current budget breakdown and an explanation of the categories.

2019 Budget Breakdown.jpg

Category Explanation

I know some of the categories are broad, so let’s dive into it:

Giving: Includes our giving to the local church along with individual support of missionaries monthly.

Savings: One savings account, one investment account, and one college fund. Under the savings account includes various subsets. The following is budgeted monthly and included in the percentage:

General | Car Maintenance | House Maintenance | Future Car Purchase | Medical | Vacation | Christmas

Child: All costs associated with our daughter, Madison. This includes: child care, clothes, food, etc.

Transportation: Gas and car insurance. (note: Cars are paid off)

House: Mortgage along with above-and-beyond principle payments throughout the year.

Utilities: House utilities. Includes: electricity, water/sewer.

Entertainment: Internet, phones, T.V.

Food: Groceries. (dining out comes from spending category)

Spending: Money we can “blow” on anything. One spending amount between both of us — and an amount for each Kayla and I. Here’s what typically comes out of here: dining out, clothes, dates, other random purchases (I buy too many Patriots things).

Misc: Three categories that made 1% each, so I combined it. Our dog expenses (1%), which are medicine and vet trips. This cost is low because Louie is healthy, which is great. Hair/Beauty (1%), which is haircuts and makeup — for Kayla, not me. Business Expenses (1%) — monthly fees for this blog you’re reading along with monthly costs for a small side business for Kayla.

Now what?

Once we have hard numbers and a literal financial picture to look at it, we can move forward. This is the part where self-discipline comes in handy.

What on your chart is making you cringe? What do you like? What needs work?

Those are questions you need to answer. But, now you have a viable picture to see what needs to happen.

When we paid off $70,000 of debt in five years, I can promise you our chart was very different. To pay off our debt, 35% of our income was to dedicated to debt. That meant our giving, savings, house and spending money were drastically lower.

When we paid off the debt — with 35% of the budget free — we were able to buy a home, give and save more, as well as have a comfortable budget for a new life-stage … i.e. having a child.

To get where you want or need to be, you’ll have to adjust. Through a few years of meeting individuals about their personal budgets, I can tell you most people cut entertainment first. It’s crazy to see what cutting cable and reducing your data plan on a cell phone plan can save! Following entertainment, food is typically the next option.

People never realize how much they are dining out. In some families’ budgets, the entertainment and food categories have saved $200-400 a month. Once they set a lower amount of allowed entertainment spending and stick to it, they can then allocate to other areas (debt, savings, etc.).

Your financial picture won’t be solved over night. Many things remain that I don’t like about ours. But, the first step to managing your money better is to start somewhere.

If you have any questions/personal examples you want some insight on — shoot me a comment!