It’s a new year, which means that everyone is losing their marbles about creating and maintaining their New Year’s Resolutions. I know, I know, it’s another blog about being smart with your money…but WAIT! I have some extremely practical and applicable tips to get out of debt and to save big this year! Welcome to Budgeting 101.
“Beware of little expenses; a small leak will sink a great ship.” Benjamin Franklin
Unfortunately, sometimes “life” happens. Maybe you attended college, had a baby, or an unplanned major medical expense. Life expenses can pile up so quickly, and before you know it, you are sinking under debt. While debt can feel crippling, there are practical ways to get back on top of your finances.
In my opinion, the most efficient way to get back on track is to use the Debt Snowball Method. This method requires you to evaluate your debts in order from your smallest to your largest amounts. Every time you make a payment toward your debts, pay the minimum on each one, except for your smallest debt. Pay as much as you possibly can toward your smallest debt, every time you pay. The sooner you pay off your small debt, the sooner you can begin to pay off your bigger debts. For example, you will take the money that you were putting toward your smallest debt, and you can add that amount to your next debt. Soon enough, the snowball effect will begin, and you will pay off your debts much sooner than expected. (WIN!)
“Budgeting is the first step toward financial freedom.” Beyond a Budget
Okay, paying off debts sounds so awesome, but how practical is it? This is where creating your budget will be essential. If you have never created a budget, there are tons of resources that you can use to help you. We love the Mint App and Mint website to easily stay on track. We also use Google Sheets to create, update, and manage our budget. In order to create an effective budget, you will need to gather your paychecks, bills, and receipts to help you figure out how much money you have coming in versus how much money you have going out. When you first create your budget, you may be surprised at how much you are spending on frivolous items, but you are not alone! Utilize free online resources for advice and freebies regarding everything from meal planning to investing in a Roth IRA. Once you’ve created your budget, set goals for your finances. It is easy to get sidetracked if you do not set specific and measurable plans for your finances. For example, we try to hit our goal of 15 “No Spend Days,” per month. If we hit our goal, every month for a year, we will have had 6 months of spending ZERO DOLLARS! This is such a manageable way to save money.
“A budget is telling your money where to go instead of wondering where it went.” Dave Ramsey
You may have heard of the envelope system, created by Dave Ramsey, but using it can seem impractical. When my husband and I first started using the envelope system, it was a lot of work. Luckily, the bulk of the work was already completed when we finished our budget. To create an envelope system, gather your finished budget, envelopes, and cash, and let’s get started!
I absolutely LOVE Allison Baggerly of Inspired Budget. She has some of the very best resources for creating an efficient envelope system. In the past, we have simply used plain white envelopes, but since finding Allison’s resources, we printed our new envelopes on card stock, which ensures that they stay strong throughout the month. Some of our envelopes do not get used very often, such as car maintenance, but our grocery envelope needs to be STRONG because that bad boy is used frequently!
The point of utilizing cash envelopes is to stay on track with your budget. We refill our cash envelopes after every paycheck, and we check in with our budget and goals, frequently. Our envelopes are labeled as follows: groceries, eating out, gas, tithe, daycare fees, HOA fees, vehicle maintenance, and utilities. Now, there are things that we don’t pull cash out for such as our mortgage. But, anything that we would write a check or swipe a debit card for, we pull the cash out. The cash envelope system helps you quickly identify which areas you are struggling with. The ultimate goal of using the envelope system is that when your envelope is empty, you are done spending. Yeah, I might really want sushi from Tank’s Sushi Bistro, but if my eating out envelope is barren, no Tank’s B for me. Once you get comfortable using your cash envelope system, you will realize what areas you have room for improvement.
While creating a budget, using the cash envelope system, and quickly paying off debt can feel overwhelming, you will surely reap the benefits of having a smarter money management system. So, give it a go and crush those 2019 goals!