Ready to write your first budget but have no idea where to begin? Enter: Allison Baggerly, the founder of Inspired Budget and author of “Money Made Easy.” She and her husband paid off more than $110,00 debt in less than five years — on two teachers’ salaries no less — thanks to budgeting. Below, she shares her best budgeting tips to help make the process more manageable.
Over a decade ago, you and your husband tallied up your debt and it totaled over $110,000. Take us back to that moment. What was the first thing that crossed your mind when you saw that number?
The first thing that crossed my mind was, “This is impossible. I'm always going to have this debt.” I also remember thinking, “How on earth did we get ourselves here?” I honestly felt very defeated, and I felt a lot of shame and guilt. After letting those emotions sit for a bit, I thought about what I could do to make our money situation better. One step at a time, not trying to be perfect. I started by paying off some of my smallest loans, which felt more doable. Four and a half years later, we paid off six figures of debt on two teacher’s salaries with two kids in daycare.
How did you create that first budget and what mistakes did you learn from along the way?
Budgeting takes time. One of the things we did wrong was that we weren’t realistic. When we compared what we thought we were spending vs. what we actually were spending, it was very eye-opening. Our first several budgets didn’t work. It felt like we were just kind of fumbling our way through them. It took steps, and it took falling down. But the more we did it, the more familiar we became with our money, and it became easier and faster to write a budget.
Foolproof tips for creating a budget for the first time?
Get it all out on the table. Lay out the money you have coming in, and the money you have going out. Print off your bank and credit card statements and see if your income is greater than all of your expenses, including your minimum debt payments, rent, utilities, spending money, etc. If it is greater than your expenses, put that in a spreadsheet and start creating a budget. If it's not, then you need to find ways to increase your income or cut back on your spending.
Also, budget per paycheck, not by the calendar. Your budget should start on your payday and end the day before the next payday. Think of it as your checking account resetting. When your checking account resets your money resets too. Budgeting per paycheck makes it easier to manage. Finally, think ahead about what’s coming up. Set aside money from a previous paycheck — even if it's just $100 — and save it to help supplement large expenses like Christmas, back-to-school clothes, vacations, etc. Also set aside money in advance for things that you know are going to happen, like large bills that will be coming out within the next month.
What are some common budgeting mistakes to avoid?
One mistake to avoid is writing a budget that is completely unrealistic. The first time my husband and I ever wrote a budget, we decided that we were only going to spend $10 eating out at restaurants for the month. As a married couple who wants to go out to dinner and wants go on dates, clearly that was so unrealistic. It's laughable. Another mistake to avoid is writing a budget and then ignoring it. Writing a budget for a budget's sake isn’t going to get you anywhere. I recommend printing it out and displaying it somewhere you can see it. That way, you can compare your real-life spending to your budget. Plus, this will actually help you become better at budgeting because it allows you to recognize your own spending patterns.
How can I make a simple, easy-to-follow budget?
First, write a mini-budget. Open up your checking account on your phone, and write down your account balance. Then, look at your calendar to see when the next day you get paid is. Take the amount of money you have in your checking account and think of all the spending you're going to have to do until then.
Next, think about why you want to budget. What is it that you want to do or accomplish? Maybe you want to go to Greece, buy a new sofa, get a new car, or pay off your credit card. Think about how your budget creates the steps to reach that goal.
Then, be honest with yourself. I've had women talk to me about being too scared to open their bank app and look at the number. Lay it all out in the open. Look at how much money you have in your checking account. Look at how much you have in savings and at how much debt you have. That will give you a really clear picture of your finances.
This interview has been edited and condensed for clarity.
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