Not sure what a budget has to do with travel, first check out the three part budget series to learn more...
Once I graduated college and started making money in my corporate job; no one could tell me anything. I thought I had full freedom to do anything I wanted; buy an unlimited amount of clothes, take expensive trips, and eat out everyday. What I didn’t realize was I was putting myself in a destructive cycle of living paycheck to paycheck; not saving any money; and making little to no dent in my debt payoff.
I had to learn that a budget wasn’t the end of the world and it wasn't a restraining order but it was the true FREEDOM I was looking for. My first steps in getting my finances in order was to create a budget and stick with it. In result I was able to become debt free, travel overseas, and later on quit my job to travel full time.
Here are 5 steps to creating a budget that will allow you to meet your desired goals - debt free living, travel more, build up your savings, etc.
Step 1 - Income, Bills, and Debt
List all income; how much you make each month - refer to previous pay stubs to determine your average monthly income. Next list all monthly bills and debt payments; these are payments that are required to be paid each month. Here are some sample categories:
Subscriptions (Netflix, Hulu, Amazon Prime, Apple Music, Spotify)
Monthly Debt Payments:
Step 2 - Expenses
Next, list out all daily necessities or one-time expenses for the month & how much is paid for each category. Here are some example categories:
Gas & Car Maintenance
Shopping (Clothes & Home)
Entertainment (Movies, Concerts, Events)
Not sure how much you need each month? Not a problem; there are several ways to get a rough estimate of how much you spend on these things monthly:
Manually Track Expenses - write down each expense you make throughout the month; preferably over a 2 month period. For example, each time to you fill up record the date and cost. Total that up at the end of each month and get the average of the two. This will be good starting estimate for your budget.
Export Transactions from Bank Account - go to your online personal banking account and from there you can download and see your transaction activity for the past two months; write down and sum up all income, bill, debt, and daily expenses
Link Bank Accounts to Mint.com - see all your accounts transactions and trends in one place, go through the last two months of transactions or use the ‘Trends’ tab for an overview by category [How to Use Mint Quick Overview]
WORDS OF ENCOURAGEMENT!
So far you might be feeling discouraged or overwhelmed. Yes, this will take some time. Unfortunately getting your finances in order doesn’t happen in one sitting; but it’s worth the initial time. Let me encourage you by saying I know exactly how you feel and I have been where you are! But this is a proven process I have seen and done - it is how I got out of debt and was able to travel.
Add up each section for a monthly total; the example gives you the following:
Step 3 - Reality Check
Your income should be able to support all bills, minimum debt payments and daily expenses. With the information collected above take your monthly income and subtract all bills, debts payments, and daily necessities. If there is money left over this means you are under budget and probably living under means, however if there is a negative amount left over this means you are over budget and might be living above your means.
If you don’t have enough money to meet all your payments and expenses; don’t worry there are some ways to bring the costs down (I've found that number 1 and 2 are best opportunities to save money):
Reduce Grocery, Eating Out, and/or Shopping Budget
Reduce or cancel your cable package
On average cable can run you up to $100+ a month. I got rid of my cable in 2013 and never looked back. In the age of subscription services it’s possible to still enjoy our favorite shows using streaming players like Apple TV, Roku, and Amazon Prime. And if you have shows you watch during the season networks upload episodes within the week after they air.
Sell anything you are no longer using; go through your entire home and find items that you are no longer using and are in good condition and put them for sale on ebay, offer up, or facebook marketplace.
Reduce or cancel any non mandatory memberships or subscriptions. Trade in that $40/month gym membership for a $10-20/month or cancel it if you haven’t been in more than 2 months. Pick one streaming service (Netflix, Hulu, Amazon Prime)
Sell your car and buy a used one with no payments; if you just took out a $30k car loan and can’t make the payments without going over budget it might be a sign you need to get a cheaper car or buy one in cash.
Once you’ve reduced your costs below your monthly income it’s time to create a starter budget.
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Step 4 - Budget Creation
Now that your budget is set; all bills, debt and expenses have been determined it's time to create a budget that can be tracked daily. Take the details from above and list out all expenses starting with bills first, debt second, expenses third and then *savings next, and then wants/desires last. Every dollar should be accounted for against income as shown in step 5.
*With the money that’s left over after expenses, debt, and bills are paid - allocate a set amount to go to savings.
Don’t be discouraged! This process of budgeting will be tweaked and adjudged over time. The goal is to be flexible because you may have budgeted too high or too low for an expense; so an adjustment is needed.
Step 5 - Track Spending
Input this budget into an excel/google spreadsheet or an online app (such as Mint or everydollar). Keep your receipts after each transaction and input expenses into the spreadsheet or app daily. In order for you to stay on track with your budget.
Example #1: Using excel input your budget and track daily how much you are spending; this will help you stay on budget.
Example #2: July Budget using Mint.com; each dollar has been assigned to a category.
Some Tips, Tricks, and Standard Guidelines
The budget will not be perfect the first time, it will take time to get used to living on a budget - impulse shopping will have to be fought through, over spending on food will happen. It happens to all of us, but keeping to the goal will help you be successful with this budget.
For expenses like groceries, the envelope system can be used. I personally used this system when getting out of debt and it was a game changer. Using cash forced me to track every transaction so I knew exactly where my money was going and how much I had left in real time. Tutorial on envelope system coming soon, in the meantime, contact me here.
Get an accountability partner; someone you trust and you know who will hold you accountable with your goals and this budget. Meet with your accountability partner bi-weekly so that both of you can be on the same page and also celebrate when you reach goals. Never forget when debt is paid off or goals are meet.
Check budget (bills, income, debt) every quarter and make adjustments as needed. For example, a lease renewal may have increased your rent or your car insurance might have decreased. Make these changes to your budget to ensure you have enough funds.
Here is the biggest tip of them all. LEARN TO SAY NO. The hardest part of budgeting is to stick to the budget at hand but when you keep what the goal ahead is (pay off debt and/or go on vacation). Saying no now is saying yes down the road to what you always wanted.
This is a great start to financial freedom as well as more travel experiences!