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Common Cents: A Budget Workbook - The Totally Approachable, Not-Scary Guides
![Common Cents: A Budget Workbook - The Totally Approachable, Not-Scary Guides](http://img.images-bn.com/static/redesign/srcs/images/grey-box.png?v11.11.4)
Common Cents: A Budget Workbook - The Totally Approachable, Not-Scary Guides
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Overview
Product Details
UPC: | 9781631065774 |
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Manufacturer: | Rock Point |
Publication date: | 01/14/2019 |
Read an Excerpt
CHAPTER 1
BUDGETING BREAKDOWN
A BUDGET IS HELLA IMPORTANT. Between paying your rent, keeping your pet alive, saving for your future, and not starving to death, your money goes a lot of different places — and fast. The days of dreading the state of your bank account after a night out should be over; hate to break it to you, but you're an adult now, so it's time to start tracking your spending like one.
The first step of making a budget is to take an inventory of your finances — namely, your income (aka money in) and expenses (aka money out).
How old were we when we made our first budget?
"When I was probably 11 years old, I really wanted a cell phone. My parents basically said, 'We're not buying you a cell phone, but you can buy one.' So I did a whole budget starting with all of my expenses (vending machine Cokes and Pop Tarts) and all of my income ($1 week allowance and irregular chore money). Long story short, I could not, in fact, afford a cell phone, but I did learn that you need to have more income than you have expenses."
"My dad has always been a real penny-pincher, so I grew up being familiar with budgets. But it wasn't until I moved out of my parents' house (for the second time) at 23 and started paying all of my own bills that I actually pulled up Google Sheets and color coded my way to my first real budget (and showed it to my dad and Meleah for a second and third set of eyes). Meleah's story makes me look dumb, but this just goes to show it's never too early, or late, to get your finances in order."
To get started, we suggest pulling up (and maybe printing out) your bank statement (and your credit card statement, for good measure) for the past month, and keeping it handy for the next few steps.
HOW TO USE ALL BILLS
Using your bank and credit card statements, make a list of your bills, including annual and monthly. All of them. Don't hide them, don't crumple them up in your purse, don't avoid opening the emails; write them down in the All Bills worksheet. And then cry a little inside. Or outside, no one has to know.
Filling out your All Bills worksheet can be quasi-traumatic because expenses like rent, a mortgage, and health insurance are pretty fixed — and expensive. If some of your bills vary month to month, like utilities and electric, just take an average from the past three months and write it down; then make a note that it's subject to change. Think of this list of bills as the core of your budget (you'll end up copying them over to your monthly budget as well); it won't change as much as your monthly budget, where you can trim things if you need to cut down on spending.
We've also included checkboxes for you to track whether your payment will come out of your checking account or be paid by credit card, as well as some blank lines for you to fill in if you need them — for extra credit cards, student loans, annual gym membership fees, annual pet check-ups, etc. So get all of your actual bills down on paper, add up your total bills amount, and then let's move on to the next step.
Before creating your monthly budget, have these things in front of you:
[] Bank statements
[] Credit card statements
[] All Bills (filled out)
HOW TO USE MONTHLY BUDGET
Next, flip to the Monthly Budget worksheets (we've included thirteen so you'll have one as a template and one for each month for a year) and write down all of your other monthly expenses. This is where you will track exactly where all of your money goes each month — from more responsible spending, like paying off your credit card(s) and saving for retirement, to more fun expenses, like how much money you spent on dining out or on new makeup at Sephora.
It's also worth noting that your budget will be different from your friend's, or even your roommate's. There are some universal truths when it comes to budgeting, but ultimately it's your life, your money, and you need to figure out how to best manage it. The two of us, for example, have slightly different budgets — and we wrote this book together (with only a few minor disagreements).
Because everyone makes different money choices, we left you A LOT of blank spaces for however you choose to spend your money each month. In fact, when we initially asked our friends to workshop the first draft of these budgeting worksheets, someone asked us, "Where would I include a gym membership?" We immediately gave each other looks and started cackling; not because we purposely left that off the list, but because we definitely don't have gym memberships, and so needing a spot for it had literally never crossed our minds during our initial run-through.
So, if you need space to budget for the gym, workout equipment, or supplements, add it in. If you need to budget for a monthly spray tan, add it in. We both have several line items devoted to our pet expenses in our personal budgets, so if you're a pet parent, be sure to budget for vet bills, food, litter, toys, the works.
The point is, while this budget does include plenty of fixed, universal expenses, you can completely customize it to budget for your lifestyle.
Your first pass through your expenses doesn't have to be perfect. As exemplified with the gym membership scenario, we accidentally left a few items off of our first pass at MAKING this budget worksheet, so you'll be fine. Perfection is the enemy of good, and all that jazz.
Pro Tip: You might want to write in pencil! Or keep your correction tape close by if you just need to write in pen.
You should be updating and re-evaluating your budget pretty frequently anyway (if you move, get a promotion, or change jobs, for example), so you can always go back and add to it. A word of caution, or wisdom, or what have you: Some bills will change month to month.
If you don't have a completely and totally accurate average, that's fine for now. Just start out by making an educated guess (like we said earlier, you can average your payments from the last three or so months). If you find that you spend more or less on something each month, adjust as needed.
Plus, we've dedicated a space for notes about each line item; so if you want to note that a certain bill will change month to month, write it down. If you have auto-draft set up for a couple of payments, go ahead and write that down too!
We've also included a monthly overall "Goals" section. Here, you can write down three things you want to accomplish that month. This could be something you want to cut back spending on (do you really need that mani-pedi this month?), or it could even be putting back a little extra into your savings and/or emergency fund.
If you're feeling a little lost when you peek at the monthly goal boxes, check out chapter 5, "Setting Financial Goals." (Remember: you're free to jump around this workbook a bit; after all, this is about what's best for you and your finances.) You can look at the steps you need to take to accomplish your goals and use your monthly goals as a means to achieve them.
All that being said, the most important aspect of creating a budget is to set financial goals and stick to them (as best you can, at least). On each Monthly Budget worksheet, we've included a "goal" amount for each line item as well as an "actual" amount. Here, you'll set your money goals (although the items on the first page will be fixed amounts for the most part) and then be able to track whether or not you're meeting your goals. After a couple of months you'll really be able to see where you're spending way too much — and where you can cut back.
For example, if you're making your April budget, you might plan to only spend $45 on movies, but when you review your spending from April, you might see that you've spent $65. If it's a one-time thing, don't sweat it, but if after a couple of months you see that you always overspend at the movie theater, you need to re-evaluate. Maybe the answer is to cut back how often you're going to the theater, or maybe the answer is that you need to look at your budget and find somewhere else you can cut so you can keep on staying current on the latest flicks. Remember: at the end of the day, your budget needs to work for you!
If you're a person who likes to have visuals, feel free to highlight and/or color code to your heart's content. If you over-spent on one line item, highlight the amount or circle it in red. (Then make a plan for cutting back next month.) If you were on-goal or you spent less than anticipated, make note of that too and give yourself a little pat on the back! (And even consider reducing that goal amount.)
HOW TO USE TOTAL MONEY OUT VS. TOTALMONEY IN
When you're setting your "goal" amount for each line item, be sure you add everything up to make sure you're living within your means (more on that later). If your Total Money Out is more than your Total Money In, you'll need to go back, re-evaluate your priorities for the month, and adjust your budget.
When totalling up your Total Money In, figure out how much money you make each month. Start with your regular, post-tax, take-home pay, and then add in any recurring side-gigs — whether it is freelancing, pet-sitting, or any entrepreneurial endeavors. If you don't know exactly how much you make, refer back to your last several bank statements. If you work an inconsistent schedule or get paid based on commission, the Total Money In figure will be a little harder to come up with, but try to just use an average of the last few months.
Once you've done all the math (which can take a while, so block out a serious chunk of time for this), you can start entering the actual amounts you're spending on each line item. It's important to note that there is NO right way to do this; you can use a pencil and enter in amounts as you go through the month, whether that be weekly or bi-weekly, or even as you make purchases, or you can sit down at the end of the month and track everything at once.
Either way, at the end of the month, total up your spending, aka your Total Money Out. Then subtract that amount from your income, aka your Total Money In.
Take a good, hard look at that final number. Did you spend more than you made? (Thanks, credit cards.) How much more? Or did you spend less than you made? How much less? What are you going to do with that money? What will you do differently next month? (We've included a few notes pages for you at the end of the book — so if you want to answer these questions there, you'll have plenty of space to do so.)
Ideally, you want the amount left at the end of the month to be a positive number. This is called "living within your means." And because you've already factored in things like contributions to savings and retirement, this is a good number.
But if you really want to set yourself up for financial success, you should be living beneath your means as opposed to just within them. Rich people are rich for a reason; they live like they're poor, aka well beneath their means.
This is a concept we learned from Bridget Casey, the founder of Money After Graduation (and our second-favorite Canadian, because, well, Ryan Reynolds exists). She's discussed the concept on her blog, as well as with us on a 2017 episode of our podcast, EVEsdropping.
Welcome to the magical, mathematical world of budgeting. It's time-consuming, but it will change your life for the better.
Things to remember when creating your monthly budget:
Schedule plenty of time.
Be flexible and keep an eraser handy.
Set financial goals (and stick to them).
Keep Total Money In > Total Money Out.
CHAPTER 2WE'VE GOT DEBT, HOW 'BOUT YOU?
IF YOU'RE EVEN remotely living your life, especially if you've made a bit of a habit of not living within your means, there's a good chance you've racked up some kind of debt. If not, wait for it. It'll happen. Maybe you have student loans. Or you married someone who has student loans ("what's yours is mine" is no joke).
Maybe someone told you it was a good idea to sign up for ten different credit cards in college and now you're swimming in credit card debt. Or you want a new car, new furniture, or to buy a house someday. Debt, debt, debt. It's inevitable.
The trick is being smart about your debt. Although there's no "good" debt, there are some things that are worth going into debt for — as long as you have a solid plan for paying it off.
DEBT MATTERS
Worse, debt is expensive and bad for your credit score. Let's start with why it's expensive. According to surveys by CreditCards.com, the average credit card interest rate in 2018 was more than 16% (we're rounding here, because we're about to do some math).
If you put $1,000 on a credit card with a 16% interest rate and you don't pay the balance immediately, you'll ultimately spend more than that $1,000. For example, if you take a year to pay back that $1,000, you'll be paying more than the minimum payment each month (which is good!) but you'll also end up paying an extra $160 to the credit card company on top of the original $1,000 you spent. That's not a way to make a living, friend.
1,000 x 16% (aka 0.16) = $160
Things get worse if you only ever make the minimum payments on a card — it can take years to pay off even a small balance, and the resulting interest can end up being nearly as much as the purchase was in the first place. You can Google "credit card interest calculator" and then plug your numbers in. You'll see what I mean.
The other thing you need to know about debt is how it affects your credit score — credit and debt are inextricably connected. Your credit score is a rating assigned to your financial history to help banks, credit card companies, and other lenders assess how likely it is that you'll pay back a sum of money. Your credit worthiness is determined by a few main factors: your credit history, whether you pay your bills on time, how much you earn in a year, and two big numbers: your 1) debt-to-income ratio and 2) credit utilization ratio.
To understand your credit score you also need to understand that a ratio is a comparison of two numbers. Calculating a debt-to-income ratio is a bank's quick way of assessing your finances. The lender totals up all of your debts and compares it to your total regular income. For example, if you earn $50,000 a year, and you have a $4,000 personal loan and a $1,000 credit card balance, your total debt is $5,000. That leaves you with a debt-to-income ratio of 1:10, which calculates out to 10%.
5,000 / 50,000 = a ratio of 1:10 (aka 10%)
Your credit utilization ratio is a comparison of the total amount of credit you have available (basically all of your credit card limits added together) vs. the total amount of credit you have used (so the balance on those credit cards). If you only have one credit card with a $2,000 limit, and you've put $1,000 on that card, you have a credit utilization ratio of 50%.
1,000 / 2,000 = a ratio of 1:2 (aka 50%)
It probably does sound like we hate credit cards and we don't think anyone should ever use them (ever), and if you have debt you've messed up your whole life. But that's not quite it; credit cards can be incredibly beneficial if you use them wisely. Smart credit card use (and payment) can build your credit history, which is a crucial part of your credit score. And debt? It just happens. No matter your intentions, it will be challenging, to say the least, to really operate without getting into at least a little bit of debt.
So now that you know you can't escape your debt-ridden future, it's time to work out a plan for paying that debt off in a timely fashion. It's not enough to say, "Oh, once I start making enough money, I'll start paying off my debts." Just like how you shouldn't wait to start saving, you should never, ever, ever wait to start paying that debt off. Even the tiniest amount you can scrape together is better than nothing.
DEBT REPAYMENT STRATEGIES
What's your plan of attack? Lowest balance first? Highest interest first? Pay off one form of debt at a time? Pay them all off a little at a time? There are pros and cons to any of these methods — one of the cons being, for all of them, you have to pay down your debt with your own money, blech.
Here's a quick rundown of the rationale behind some popular approaches.
START WITH THE LOWEST BALANCE
If you pay your lowest-balance debts first, you get two main benefits:
1) The rush of having accomplished a step toward your end goal.
2) Fewer accounts to keep track of, which practically speaking, makes life easier.
That said, you'll will still be accumulating interest on your larger balances, so you may spend more on your debt in total.
START WITH THE HIGHEST INTEREST
If you work on paying down your debt with the highest interest first (which will usually be a credit card; a bank loan is typically going to have a much lower interest rate), you'll spend less money on interest over time. That makes this strategy sound like a slam dunk (and it is the strategy we use), but if your highest interest card is also your highest balance it takes discipline to stick with this strategy because you'll have to pay for so long before getting the sweet satisfaction of a $0 balance.
(Continues…)
Excerpted from "Common Cents"
by .
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