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I’ve gotta tell you, when my family reached financial freedom, it was a wonderful amazing feeling! But it didn’t happen overnight. We implemented a budget and scrimped and saved and threw as much money as we could at our bills, car payments, and house payments. And then 4 years after implementing that budget, we had no credit card debt and no loans. Even the house was paid off! And in 5 years, our net-worth had doubled.
Our financial freedom was and is a frugal one. I’m sorry to say that I have no get rich quick schemes here. I didn’t get a huge raise at my job or even get a side job to pay off debt faster- I was too tired and burnt out for that. But I did discover a process that used the money we were already making to chip away at our bills and get me closer to where I wanted to be every month. Like the tortoise who beats the hare, slow and steady wins the race.
Progress can be made wherever you are starting financially, but you must be willing to put in some time and effort, and work with what you have.
If my family can reach financial freedom, you can too!
The budget was key in creating the foundation that we needed to make progress with our money. We use Mint.com to plan our budget each month and track our cash flow. Create an account to immediately start setting up a monthly budget.
Create an account on Mint.com (free!)
When I first created an account on mint.com, I had just read The Total Money Makeover by Dave Ramsey and The Automatic Millionaire by David Bach. I sort of combined the lessons that I learned in these two books and determined that my best plan of action to start taking control over my money was to find an online solution that would help me track my spending. Mint.com was that perfect solution. It was free and it allowed me to review all of my financial accounts in one place (bank accounts, credit cards, loans, retirement plans, etc).
Side note: This site allows you to view your financials, but if you need to make a change for a specific account, you must go to that site. Mint.com is READ ONLY, and that’s why I feel safe using it to review my finances.
Sign up for Mint.com here: https://www.mint.com/
Connect your financial accounts to Mint.com
Once you’ve created your new account, mint.com will prompt you to start adding your financial accounts. Scrounge together a list of any and all that you can think of right now and get them connected. If you can’t remember them all, you can always add them later. The idea is to get as many into mint right from the get go so you can see the fullest picture of your financial health. Mint is going to pull in, aggregate, and categorize all of your transactions for you. It is such a HUGE time-saver! All of this automation is what is going to help you keep budgeting month after month. I cannot stress the importance of this enough!
Determine your average monthly income
Do you know how much money you bring in each month on average?
Plan your budget for the coming month
This is probably the hardest and most time-consuming step because the budget categories need to be determined and created, and the category amounts need to be tweaked to fit your lifestyle. They also change a bit every month depending on the month’s special events. But the rule of thumb for budget categories is 50/20/30, which means that you should spend 50% of your income on necessities, 20% on savings, and 30% on personal:
These percentages are a great start for your first month planning a budget because it gives you a quick and easy way to calculate how far off you may be with your planned budget. Don’t fret about this too much because you’ll be tweaking the numbers each month as you learn more about your spending habits and what you want to change (like not spending $200/month on movies and $125 on coffee).
Below are the main categories that I use in Mint and the percentages that I achieved in February. As you can see, I didn’t have a perfect 50/20/30, and that will vary month to month. I’m still proud of this because we did it on my husband’s salary alone and we’re still saving:
- Auto & Transport
- Bills & Utilities
- Health & Fitness
- Retirement Fund
- College Fund
- Emergency Fund
- Kid Activities
- Fun money
Side note: You may have noticed that I have a category called “fun money.” I highly recommend you include this category for yourself and your spouse as well. This category is kind of like an allowance. It’s a bit of money that you can spend however you please, and it’s great for avoiding arguments about things you or your spouse may have bought. As long as they use their fun money for it, it’s all good because you have allocated for it and it fits in the budget. This category has been a lifesaver many times in my family. There’s no need to argue about fast food purchases, movie rentals, and other impulse buys because of it. I recommend that the money in this category rollover from month to month so you can save up as much fun money as you want for bigger things.
Estimate spending for each budget category
As you add categories to your budget, estimate how much you expect to spend in each. If you don’t know the exact amount, give it your best guess. This is the sort of thing that you will be learning and tweaking over the next few months. This first month is just a baseline.
When you are planning your budget, you’ll have the usual categories, but also think about any special activities, parties, birthdays, holidays, doctor visits, car maintenance, and other periodic or yearly expenses that you know will be happening in the coming month that will change how much you spend in each category and then edit it accordingly.You’ll want to be sure to include these expenses in your budget or you will be unpleasantly surprised when your budget is busted.
Also, another great tip from Dave Ramsey, make sure you are defining a category for every dollar that you expect from your income that month. Even the money that you plan to put towards debt or save. To do this in Mint, you’ll create goals (to pay off a loan, for example) and tell Mint how much you plan to put towards it each month. This is important because this is how you make sure you know what is happening with every last cent of your money.
Now, once you’ve finished adding your budget categories to Mint, you’ve got to keep an eye on how things are going with your budget periodically.
Review your transactions and budget weekly
When you’re first starting out, not only are you learning about your own spending habits, but Mint is learning, too. Every week, it is important to log into Mint, refresh your accounts, and review any transactions that have not been categorized. Mint will remember the category you select for the next time you have a similar transaction. Over time, this whole process will get quicker because you’ll basically just have to review new transactions to confirm that Mint applied the right categories.
There is even an app for your phone so you can stay informed about your money with Mint wherever you are.
So there you have it. You’ve planned your first monthly budget in Mint, created categories, assigned amounts to each, and now this is where the rubber meets the road.
Stick with your budget
You now have an idea of how much you want to spend on various things each month. Do your best to follow your plan and remember why you’re doing this. It’s going to be hard at first, but believe me when I say it will be so worth it when you start to see your debt shrinking.
Once you’ve been doing this for a month or two, it’s time to re-evaluate. Start finding where you can make changes to do more with less.
Read on for the next steps in Frugal Finance 101: Do more with less