Getting Started

Congratulations on deciding to get started fixing your finances! We decided to write a brief guide on where to start and what to look at to help you on your way. This list is not exhaustive, and we encourage you to read other resources as well to make sure you find the financial plan that works best for your situation.

1. Think about your financial goals

This is a critical step. Beyond the obvious of knowing what you need to save money for, this is important to maintain your motivation to stick with the plan even when it’s tough. These need to be meaningful to you, so think about what would have the biggest impact on your life once you complete it. A few possible goals are:

• Building an emergency fund (Do this one first!)
• Paying off debt
• Saving for a house or child’s education
• Preparing for retirement 
  
  
  
  

2. Figure out exactly how much you make every month

You’d be surprised (or you might not be) how many people don’t know how much money they actually bring home. We only count our take home pay here, so the exact number written on our paycheck after deductions for healthcare, retirement savings, etc. If your income is variable month to month, go with a conservative estimate of what you can expect to bring home. We’ll discuss what to do with the extra later.

3. Write down all of your fixed expenses

This is every payment that comes out of your account on a regular basis - Rent/mortgage, car payments, insurance, taxes, debt payments, phone/internet bills, childcare, and anything else you might have. Also, think about things that recur infrequently - Membership/subscription fees, vehicle registrations, water bills and any other annual or quarterly expenses you have. Add these all up, and subtract that number from the income we wrote down in step 2. That’s how much money you have for everything else in a month.

4. Take your best shot at how much you spend on everything else

This isn’t easy, and you’re probably going to be surprised by how much you spend on certain things. You can break it down into as many or as few categories as you want, just as long as everything is covered. The main categories you want to consider are:

• Food (Groceries and restaurants)
• Variable Utilities (Heat, electric, etc)
• Transportation (Gas, repairs, taxes/fees, tires, public transport, ride shares)
• Charity/Giving
• Entertainment
• Pocket Money
• Household Maintenance
• Toiletries/Cleaning
• Medical

We go deeper than those categories to track spending more precisely, but do what works for you. You may want to add other categories, such as a monthly clothing budget. Next to each category you have, write what you expect you spend there in an average month. Try to look at credit card statements or receipts if you can to get a better idea of what you actually spend.

5. See where you stand

Congratulations, you just made the beginnings of a budget! Here’s the critical step - add up the numbers you have written next to each category, and subtract that from the amount you have left after step 3. Is it positive or negative?

If it’s positive, early signs are looking alright! Take any extra you have left, and see how you can apply it to the goals from step 1.

If it’s negative, time to see where we can cut.  We’ll be discussing a lot of ways to cut back spending in this blog, but a few key areas where people tend to overspend are restaurants and going out, and tv/phone bills. See what you can do to get the numbers to break even.

6. Track everything you spend

This is hard to do, but absolutely critical for keeping a budget. We’re currently developing an easy-to-use software program for this purpose based on one we use for our own budgeting, but there are other ways too. Commercial tools like You Need a Budget and Mint work well, but they do cost money and some people are uncomfortable putting their financial information online. For starters, you can use an Excel or Google Sheets spreadsheet to track the date, how much you spent, what you spent it on, and the category as a simple tracking tool.

We use credit cards for almost every purchase to make it easy to track, and we budget well enough to know that we will always be able to pay off the entire balance at the end of the month to avoid paying interest. A word of caution here, using a credit card may be too tempting for some.  Consider using only cash if you are just starting out on a budget or trying to pay down credit card debt. Make a note in your phone of what you spend when you spend it, and try to tally spending  weekly to track your progress. Tracking weekly might seem overwhelming at first, but we find it less time consuming in the long run than trying to do an entire month at one time. We can generally do our weekly spending tracking while watching a single episode of The Office.

7. Evaluate and adjust your budget monthly

At the end of the month, add up all of the spending from your weekly reports and see how it looks against your budget. Chances are that your first attempt will be decently far off and you’ll have to adjust. Go back to step 4 and repeat the process, except this time you’ll have a much better idea of what you actually spend. After a few months of this process, you should have a budget that works for you, and then you can focus on cutting, refining, and saving money to hit your financial goals.

Bonus: Do your reading!

A lot of our financial philosophy is based on Dave Ramsey's materials. Dave Ramsey's Complete Guide to Money [affiliate link] is a great book on managing your overall financial life. He's a bit stricter in some areas than we are, but overall we think the principles in this book are great for getting your house in order.