Creating a Budget To Become Debt Free
Jason and I are finally settling into our new place, which has amazing views and all the natural lighting a girl could ask for. Not to mention, much more space and privacy than our previous condo could offer.
One pro tip I want to throw out there, especially if you're renting in hot cities like Austin where 150 people are moving to everyday:
Sign a lease off season - preferably around December-February. It does not necessarily mean you have to move those months; you can usually sign for something as early as 2-3 months out. You will not believe how expensive it gets if you want to sign in the summer. Our rent would have been 35% more expensive had we waited to sign in June or July. Jason thought I was a little ahead of schedule when I told him we should jump on this in February, but he was on board and we just saved thousands on rent this year.
So yes, we're officially renters again, and we're not even mad about it. There's always been this pressure to buy because renting "is just throwing your money away." I strongly disagree with this because there are actually times when renting for a short period of time makes sense. For instance, if you want to try out an area before you decide to buy in it. Or if you are focusing on getting rid of consumer debt, renting for half the price of a mortgage just seems more logical.
I'm all about focusing on ONE thing at a time, which I'll credit to a book I read by Gary Keller. I think this is also why I'm really obsessed with Dave Ramsey and his baby steps. When you try to do many things at once, your focus and energy are scattered so nothing really gets done.
Since this move is finally behind us, I'm able to set a more predictable monthly budget. For years, I've always had a spreadsheet that broke down the bills I would pay for each pay period. BUT, I've never made a more detailed budget for categories like food, personal care, etc.
For the last couple of months, I've been using the Every Dollar app, which is free and allows you to assign every dollar to categories you create. Then, throughout the month you enter your paid expenses into their categories. Essentially, you're telling your money where it should go before it's gone; what a crazy concept. I've always thrown as much as I could towards debt, but the first month I was actually surprised at how much more I had to throw at that category.
I thought I'd share my monthly budget, as well as the recommended % that Dave Ramsey lists in the back of the Total Money Makeover.
Housing - 19% (recommended 25-35%)
Utilities - 3% (recommended 5%)
Food - 15% (recommended 5-15%)
Transportation - 3% (recommended 10-15%)
Clothing - 4% (recommended (2-7%)
Personal Spending - 4% (recommended 5-10%)
Recreation - 2% (recommended 5-10%)
Medical/Health - 0% - HSA (recommended 5-10%)
Charitable gifts/tithing - 1% (recommended 10-15%)
Insurance - 5% (recommended 10-25%)
Debt - 42% (recommended 5-10%)*
*If you're following the baby steps and have no consumer debt, then you would save for 3-6 months of living expenses. Then, simultaneously throw a minimum of 15% towards retirement, any extra towards the mortgage, and/or children's college savings.
This budget is not going to look the same for everyone because of different income brackets. Also, this budget can look slightly different each month, especially around the holidays.
The goal is to spend as little as possible in all categories except debt. As far as the debt category, most people who are really committed in baby step 2 are throwing roughly 30-50% towards it; your income and ability to follow a budget are your 2 biggest shovels. Most people following the steps pay off all consumer debt (everything except the mortgage) within 2-3 years, which is much better than owing someone for 10+ years. Can you imagine what you could do when you do not owe anyone those extra years?
There's really no short cuts or complex formula to follow to get out debt; it all comes down to budgeting. It's simply telling your money where it goes and not spending more than you make.
Who else has a written budget? Or does it live in your head? Which category would be the hardest for you to cut back on?