Latest posts by Kumiko Ehrmantraut (see all)
- How to Deal with Debt in Collections - April 14, 2021
If you have been following me on Instagram, then you are familiar with my full (very detailed) budget overviews and recaps. Every month, I like to share how I make realistic budgeting successful in my own life. Due to so many requests, starting in January, all budget overviews and recaps will now be added The Budget Mom blog.
Starting in January, you can also find all of the videos sharing my real budget over on my YouTube channel.
I started my budgeting journey back in 2011, and it took me a long time to find a system that worked with my life. I started with a free Excel monthly template. It only took me 2 months to realize that the model and monthly format just wasn't working for me.
I was failing miserably. I was continually overspending in categories, ending up short on money before the month ended, and I was having a hard time paying my bills by the due date towards the end of the month.
Fast forward eight years, and I have been successfully budgeting my money for the last six years. Yes, it took me two years to find a system and method that I could stick to. It wasn't easy. In fact, I had to create my own process.
During those first two years, I used every method and system I could find. I used the calendar method, the half-payment method, percentage budgeting, the cash envelope method, the paycheck method and so much more. I was successful with some parts of these methods, but other areas I failed.
MY BUDGETING METHOD
One day, I sat down and took all of the elements that I loved from each system that I tried, tweaked them, and came up with the Budget-by-Paycheck method. Throughout my financial journey, I realized there is no wrong or right way to budget your money. The methods that failed for me, others find success with.
I am a paycheck budgeter, which means I budget my money every time I get paid. It was one of those AHA moments that I had during my budgeting journey. Trying to budget my money monthly just didn't make sense or fit my lifestyle. If I was paying my bills every time I got paid, it just made more sense to budget my money like that as well.
My budgeting method uses three different methods. The calendar method, the paycheck method, and the cash envelope method. Every paycheck that I create is a zero-based budget, which means that every dollar of my income is used somewhere in my budget (every dollar has a plan).
I pay all of my regular bills online when I get paid, and then pull out cash for my cash envelopes for my variable spending. I am an all-cash spender besides my monthly bills, and I hardly ever swipe my debit card.
My budgeting method was created and designed to deter me from using credit cards or debt. I never wanted to feel the pressure of using debt to cover every-day or unexpected expenses.
My Budget-by-Paycheck method starts with creating a budget calendar. I use this calendar to remind me of the things that need to be paid during the month, so I don't forget to include things like my bills, events, holidays and occasions in my budget. I then use the cash envelope method throughout the month to keep track of my spending and to make sure I am staying on track.
CLOSING OUT YOUR BUDGET
A budget is the most personal thing you will ever create. It's honestly a reflection of your life, your wants, your goals, and your dreams. Not only that, but your budget can tell you some pretty incredible things about your money.
The process of closing out your budget (figuring out where your money went during the month) is so important. It's going to show you where your money went, what categories you should be using in your budget and for your cash envelopes, and how much to assign for your budget categories realistically.
It will also show you if your spending is aligning with your financial goals, and what progress you are making. Don't just blindly follow a budget. Understand the reasons behind your financial choices, and look at what your budget tells you.
MY DECEMBER 2018 BUDGET RECAP
Why do I show you my budget recaps? One of the things that lacked when I was learning how to budget were real-life examples. I was tired of looking at “made-up” numbers or one-sided examples. I wanted to know what it looked like for a real person to successfully use a budget in their life. Not only that, I wanted to know their decision-making process and understand why they were making the decisions they were making.
I hope that by sharing my real numbers and budget with you, that you will start to understand those psychological aspects behind successful budgeting.
WHERE DID MY MONEY GO?
At the end of every month, I take all of the information from my expense trackers, and I organize my spending into categories. Now, I have been budgeting for a very long time, so I use the same categories over and over. If you are just starting out, organizing your spending into categories that make sense to your life, might take some time and tweaking.
I track my budget from the first of every month to the last day of the month.
Even though I budget my income by paycheck, I still like to assign a monthly budget for each one of my categories. For December, my most significant expense was paying off debt. 30% of my income went towards debt payments, which aligns perfectly with my goals. I am currently on a debt payoff journey, and paying off the remainder of my debt is my first priority.
I like to know if I was over or under my monthly budget. If I was over, I mark that amount with a “+” sign and write it in black. If I came under budget, I mark it with a “-” sign and write it in red. This allows me to see how I did with overspending.
I use a zero-based budget, which means my “budget” is really just a sum of my income. So some months, my income decreases or increases. My spending will always reflect those fluctuations.
THE STARTING BALANCE
A starting balance is something that will always be listed on my budget recaps. I like to keep extra money in my checking account at all times, which I call my “checking account cushion.” When you are working with a zero-based budget, all of your income is essentially being used. If you are using a zero-based budget correctly, that means you should have no money left in your checking account, because it should all have a plan for your spending on your budget.
When I first started using the zero-based budget, the idea of bringing my checking account down to $0 every month freaked me out. My cushion allows me to have extra money just in case a bill is higher than expected, or I have an unexpected expense that I need to cover. I also use my cushion for any unanticipated online purchases that I make, and then I replenish my cushion using the cash I have from my envelopes.
Some people call their starting balance “savings” or “beginning balance” but I have it labeled in my worksheets as “starting balance.”
I use the last paycheck of every month to cover some of the bills for the beginning of the next month. For example, my December 20th paycheck will be used to pay for some bills on January 1st, like my rent. By carrying over this starting balance into the new month, I have the income to cover those expenses.
HOW MUCH WENT TO DEBT AND SAVINGS
I like to keep track of my financial goals. Yes, it's nice to know how much went to savings for the entire month, but I want to know what am I saving for. What savings goals am I currently spending money on?
Same with debt. I don't want to know how much total went to debt during the month, but what specific debts am I paying off?
In December, $2,550 went to debt payments. Out of that $2,550, 86% went towards paying off my student loans and 14% went towards paying off my car loan. This is a perfect example of your money showing you what your priorities are. I am currently tackling my student loan debt. It's the next debt in my avalanche plan, so it only makes sense that most of the money that I used for debt, went towards that expense.
$665 of my income went towards savings in December. That's 7% of my income. Out of that $665, 42% went towards contributions into my 401(k). If you are wanting to know how I track my paycheck, you can watch this video on my IGTV Channel.
I use sinking funds in my budget to help me save for the future. You can read about why you should start using sinking funds in this article. Beginning in January, I will be adding more sinking funds to my budget, so I have the cash to cover future holidays, events and occasions happening in 2019.
HOW DID MY SPENDING COMPARE TO LAST MONTH?
Every month, I like to look at how my spending compared to the previous month. It helps me answer the question, “Did I make progress or decrease my spending in certain categories?”
The one category I am always fighting is my food budget. This is the one category I like to look at. I always try to challenge myself to spend less, and I want to make sure that my spending is going down or staying the same from month-to-month, not increasing.
If your income fluctuates every month like mine does, it's also an excellent way to see where you are compensating in your spending on those fluctuations. For example, in December my income increased due to a Christmas bonus at work and using some savings to make an extra debt payment to my student loans. The question I like to answer is, “if my income increased in December, where did I spend it?”
For the change in dollars, I write it in red if I spent less than the previous month, and I write in black if I spent over what I spent in the last month.
TRACKING MY DEBT PAYOFF JOURNEY
In December, I only had two debts left that I needed to pay off – my student loans and my car loan. I like to keep track of the extra debt payments I am making every month, and how much total I am throwing at debt every month.
In December, I paid off $2,549.96 of my debt, which is 3% of my overall liability of $77,281.29. Since announcing my debt payoff journey officially at the end of June 2018, I have paid off a total of $29,966.18, which is about 39% of my debt.
Keeping track of my debt payoff journey allows me to see progress, even when I feel like progress isn't being made. It's really easy to get discouraged along the way. Seeing these numbers keeps me motivated to stay the course and to keep pushing forward.
I track my debt payoff journey and fill out my worksheet after all debt payments have been made and are posted to my accounts. After December, I am left with $47,315.11 of debt to pay off.
If you would like to start a debt payoff journey to tackle you debt, you can watch my YouTube video on how to get started.
NET WORTH UPDATE
One of the things that a lot of people don't consider when looking at their finances is their net worth.
Your net worth is an overall picture of your financial health, and it can tell you if you are making progress. Your net worth is your total assets minus your total liabilities. The goal of your net worth should be to increase it every month.
You need to increase your assets (saving money), or you need to decrease your liabilities (paying off debt). As you get older, you want your net worth to increase.
At the beginning of 2018, I started out with negative net worth. I owed more than I owned. I made it a goal to have a net worth of $100,000 by the end of 2018. That means I focused on saving money and paying off my debt.
In December, I used some of my savings, so my net worth decreased slightly.
MY DECEMBER 2018 BUDGET RECAP
I made a lot of progress in December, and I am very excited to see my growth in 2019.
There are two fundamental things that I have learned on my financial journey.
One. There is no wrong or right way to budget your money. The right way is the way that works for you. It doesn't matter what the financial experts are out there telling you or what you might be reading about budgeting. You have to do what works for you and your unique life.
I get asked all the time why I choose to save money while I am on a debt payoff journey. I get judged a lot because it's not what Dave Ramsey would do. So my simple answer – it works for me and my financial goals. Don't be afraid to budget outside of the box, and do things that you feel are right for you and your family.
Two. Being on a debt free journey doesn't just mean making debt payments. Your budget is just as important as paying off debt. It's about having a system in place to ensure that you don't go into debt in the future. What are you doing today with your money that ensures you won't have to use debt later?
You can get the worksheets shown in this recap here:
2019 Budget-by-Paycheck Workbook: https://www.thebudgetmom.com/product/the-2019-budget-by-paycheck-workbook/
“Where Did My Money Go” Worksheets: https://www.thebudgetmom.com/product/where-did-my-money-go-worksheets-printable/
Love your post, Budget is a plan to cut down your expenses and improve your financial position. Your post really helps us to improve our financial position.