Let’s create a Budget; wait, did that phrase make you cringe? Many people don’t like a budget because it’s so restrictive. They think that they won’t be able to do the things that they’ve always wanted to do in their lives if they have a budget. It seems boring and lacks spontaneity is what they tell me. Yes, it may lack excitement, but it also may open up a lot of doors for you, which is very exciting. Life can be a bit about perspective. I have found it helps to focus on the positive outcome you want as opposed to dwelling on all of the horrible things you have to endure to get there. If creating a budget seems hard, then color coding your budget will make it better.
If you don’t know how to create a budget, don’t worry. I didn’t either. Don’t let that stop you from continuing. If color coding your budget doesn’t work for you, no worries, keep looking to find a style of budget or savings that does work for you!
Before you Color Code your Budget-Gather all of Your Bills!
Gather all of your bills and place them in one specific area of your house. Make sure to grab all of the bills from this month and grab the bills from last month too! The main thing is that you make sure you have a statement from each company that you owe. Chances are you won’t have them all, and that’s okay! That’s precisely why we are taking the last months too. Realistically, you only need one from each business that you owe money too. Print off your bank statements for the past month. We are currently in April, so print them off for March. Also, grab your last two paychecks.
Now you will print off a budget form online or create your own if you know how to do that! Look for a form that fit’s your needs. Some people want to be super detailed and have every penny narrowed down to toilet paper, personal needs, etc. To be honest, that just isn’t me. I kept it simple. I had the money for food as a category every month. For me, I included groceries, going out to eat, and anything that I would buy at the grocery store (make-up, feminine hygiene, whatever) under, and I lumped that all into one category. You can make the system as straightforward or as complex as you’d like.
Add up your last two paychecks and get your income amount for each month (or both paychecks from the previous month, which in this case would be March).
Create a color system for each category on the Budget you chose, so you can color code your budget. If you don’t want to create a color system, you can use mine! For example, food is dark blue, and transportation is light green, Etc. See the image below.
Highlight your budget form, or just put a corresponding color-coded checkmark next to each category with the color you will use If you don’t have a highlighter use a crayon or colored pencil. For example, next to food/grocery, you will place a dark blue checkmark or highlight it dark blue. Next to any transportation-related expense, put a light green checkmark and highlight it.
Go Through Last Months Statements
Then go through last month’s bank statement and highlight things by color. Look for anything transportation-related and highlight it light green. Once you have all of your automobile stuff highlighted, add it all up. See what the total is. Write that number down. Go through this with every color/section of your budget and do the same thing over and over.
See the image below for an example of how you could highlight your bank statements.
Make sure you have all of the totals for each individual color written down.
Now you will want to go through your bills for the past month. For example, grab all statements from March. If you didn’t pay that bill with your checking account, then you will want to highlight the envelope of the invoice with the appropriate corresponding color and even write on the outside of each envelope, what the monthly minimum for the bill is, and the total amount you owe. Go through all of your bills and do this! Then add up the totals for all of the same colors. Add up all the greens, then the blues, etc.
If you paid in cash, look for receipts. And add them into the color system and mark them with the corresponding color.
Now add up each color individually. Add all of the reds from your checking account total, your bills/statements, and any receipts you have. Throw each total into the appropriate category on the budget form. To be clear, you will add all of the reds you highlighted from last month’s bank statement, and the receipts that were color-coded red (and weren’t on the bank statement), and lastly, any bills that you had highlighted red.
It’s crucial not to double-dip. If a doctor’s appointment payment is covered in your bank statement, don’t add the fee again with a receipt that you have for the same appointment.
Add your two paychecks together and subtract the total amount you spent in each color category.
Now that you did the color coded budget, you have a pretty good look at where you spent your money last month! Is there anything that shocked you? Is there anything you can cut down spending on? Do not beat yourself up if you don’t like what you see! Just reflect, learn from it and move on.
Now I want you to go through each bill or debt you have and figure out what the total balance is and what the minimum amount due is.
It’s not a bad idea to create a debt spreadsheet with the name of the company you owe money too, the minimum amount due, the total amount due, your account number and contact information for the company. Like the image below!
What to do Next.
List your debts from smallest to largest.
From here on out, you will pay the minimum amount owed for every bill. Create your budget as if you were paying the minimum payment on each invoice. Any money you have leftover is for your savings account. This is during the Coronavirus. Save save save. You want to have three months of savings, at least. Whatever it costs for you and your immediate family to live for three months, that’s what you want to have.
Add up all of your minimum payments. Then you will take your total income from last month and subtract the total of the minimum payments. Then deduct the sums that you allotted for each category (i.e., food and transportation).
If you have a secure job and are in excellent health right now, then you can keep paying off your debts. You will pay off the smallest debt first. All of your extra money goes to the smallest balance you owe. Once that is paid off, you take the money that was going to your smallest balance and throw that towards the next lowest balance. The more you pay off, the more you gain traction.
We talk about a budget and covering the minimum amount on all expenses, but I want you to be reasonable here. That will not work for everyone. If you are in over your head with debt and bills, first focus on you and your family and covering the basic needs. Food, water, shelter, car, and gas. Pay those things first and foremost before considering paying anything else!
The whole point of the budget (and color coding your budget) is to figure out the money you have coming in versus the money you have going out. What do you have leftover every month? Are you saving enough money? Is what you’re seeing aligning with how you want things to be? You may budget and realize you are spending too much money on groceries, Amazon, or whatever you’re tempted by. Sometimes we don’t realize until we sit down and look at the budget.
When you color code your budget and bank statement it makes your spending habits, blatantly obvious!
Friend, I know color coding your budget will work for you! Believe me when I say if I can do it, then you can do it. If you really want a boost with getting started and getting more answers, join the seven days Badass Money Challenge, so you can cut down on your spending!
Tell me, friend, what do you struggle with most when it comes to finances?
If you liked this article then check out this podcast episode