If you search the internet, you will find plenty of different budget templates and suggestions. One of the biggest concerns I hear from people who don’t follow a budget, is the time it will take review a budget each month and how many formulas they need to learn in Excel. They are worried about being overwhelmed. I get that: a lot of budgets require you to have 50 categories of expenses and calculations that can seem daunting. The whole point of a budget is to relieve stress, not create it. We found that investing a little time up front allowed our budget to almost run itself.
Although I consider ourselves on a path to complete financial freedom, I can’t really think of a starting point. My parents seemed frugal but never taught me about budgeting. I found out later in life that my father had an expansive spreadsheet that he updated monthly, but I am not sure why he never revealed it to me. I would probably account my love for all things personal finance because of my enjoyment of analytics and statistics. For example, when I first got into hiking I was fascinated in outfitting my backpack to be as lightweight as possible. I have a spreadsheet of all of my items I take on backpacking trips and when upgrading my gear an item’s weight “weigh” into my decision. Pun intended.
In college I spent a fair amount of time working in call centers and in between calls I would read articles from personal finance blogs. After a while it appealed to me to save for my financial future. I realized I was making a pretty good wage and the idea of not being saddled with student loan debt was really attractive.
Mrs. Doughmaker and I have a budget we have followed for a few years now and it helps to look back and see how far we have come. It has been powerful to look at how compound interest and having a high savings rate has made us feel comfortable with our path to financial freedom – and has taken finances out of our list of worries.
The following are the 6 steps we used to create a simple budget.
Set a goal
Calculate your savings needed to reach your goal
Find a budget that works for you
Track everything for the first month or two
Adjust
Review your progress
Over the next few weeks I will review in depth each of these steps to demonstrate how we built a practical budget that fit our needs.
Find a goal (or a few)
This is an extremely important step and the first part of any budgeting process. Before anyone starts a new budget they should ask him/herself “What are my financial priorities?”
A couple of our past financial goals have been:
– Save up to buy a new mattress
– Eliminate School Loan Debt
– Eliminate Car Loan Debt
– Save up to buy a house
– Save up to buy a fence for our yard
– Increase our Savings Rate
Currently we have a few goals we are currently tracking:
– Pay off our mortgage early
– Retire early
– Investment goals
If you aren’t sure which goal is right for you, I would start by considering any high interest debts such as credit cards or school loans (over 4%) that you may want to eliminate. If you’re trying to save up for a vehicle or a house, those are great goals as well.
Next week I will continue with our next step: Using a calculator online to determine how much money you need each month to make your goal a reality.
