Telling Your Money What to Do
Goal
To reduce overspending by implementing a monthly budget.
Budgeting Strategies (Ramsey, pp. 68, 90-91, 94-95)
In order to progress successfully through the seven baby steps discussed in Lesson 2, you must set up a written budget every month. You have to tell money what to do or it leaves. It’s easy to overspend when you don’t have a clear boundary line. The budget tells you what that line is for each category.
A useful strategy for keeping those boundary lines clear is to use an envelope system for categories with boundary lines that can be easily blurred (e.g., gas, grocery, clothing, and entertainment money). You simply take the money you budget for the categories out of the bank in cash and put the money in an envelope that has the category name written on it. That money isn’t to be used for anything other than what it’s designated for. When the cash is gone, you’re done. That’s a pretty clear boundary! At the root of this strategy is that swiping a credit card doesn’t register in your brain the same way cash does. Here a few additional budgeting tips:
- Set up a new budget every month. Strive for being realistic rather than perfect.
- Give every dollar of your income a name before the month begins, which is called a zero-based budget. Income minus outgo equals zero every month.
- Look at this month’s income and this month’s bills, savings, and debts, and match them up until you have given every income dollar an outgo name.
- If you’re married, agree on the budget with your spouse. If you aren’t working together, it’s almost impossible to win.
- If something comes up in the middle of the month that causes the budget to need changing, you can change the budget but only if both spouses agree to the change and if you still balance your budget.
Watch the following video to learn more about budgeting:
Recommended Percentages Exercise (Ramsey, p. 225)
Instructions: In creating a budget, it is important to figure out how much of your money should go where. Use the table below to determine how well you’re doing at allocating your money.
| Item | Recommended % | Target % (= Total monthly income X recommended %) |
Actual % (= Budged amount ÷ total monthly income) |
|---|---|---|---|
| Charitable Gifts | 10-15% | ||
| Saving | 10-15% | ||
| Housing | 25-35% | ||
| Utilities | 5-10% | ||
| Food | 5-15% | ||
| Transportation | 10-15% | ||
| Clothing | 2-7% | ||
| Medical/Health | 5-10% | ||
| Insurance | 10-25% | ||
| Personal | 5-10% | ||
| Recreation | 5-10% | ||
| Debts | 5-10% |
Next Step
Create a budget by downloading the budgeting forms or using the online budget tool available from this website: http://www.daveramsey.com/tools/budget-forms/
See someone create a zero-based budget and use the envelope system by watching the following video:
References
Ramsey, D. (2013). The total money makeover: A proven plan for financial fitness. Nashville, TN: Nelson Books.