Sunday, June 22, 2014

Budgeting, the Newkirk Way: Step 1

I've had some people ask me about how we deal with our finances here at the Newkirk house.  I have always loved talking about this and if we're being honest, I am a complete and total nerd about making the dollars work for us.

Most of the time.  

However, I will be the first to admit that over the last nine months, I definitely have missed some huge saving opportunities and often took the "easy way out" instead of the "frugal way out".  

You see, with this pregnancy, for whatever reason, I was a lot more tired than I ever remember being with the older two girls.  I'm not sure if it's because I had two other children running around involved in activities, I was teaching fulltime and still running a photography business, or just because I'm five years older than I was with the last pregnancy.  One of the many joys of being 30.  :)

Regardless of why I was so tired, one thing is for certain...planning a menu, grocery shopping, and cooking at home were NOT on my top priority list.  And so, we ate out far too often.  In fact, when I looked back at the bank statements from the last few months, I was mortified at the amount of money we spent at random fast-food establishments.  Mort. I. Fied.

The other piece to this puzzle is that in the last few months, I have nearly shut the doors on my photography business.  I am taking a few clients here and there, doing some mini-sessions, and shooting a few weddings each year.  However, this will be a substantial loss of income for us.  It has definitely been worth it so far this summer to be spending time at home with my dear husband and babies, but it is also becoming quite the adjustment financially.

And so...we're back on the budgeting band-wagon.

And we'd love for you to join us.

Over the next few weeks, I'm going to post a step-by-step plan of how we deal with our finances.

Today, I'd like to help you get started on writing a household budget, by answering some key questions about what works for us.

Where did our budgeting method come from?

My budgeting method has really changed over the years.  

My parents have been the most influential in my financial journey.  For as far back as I can remember, my mom has worked and reworked their budget at the beginning of each month.  I can remember her getting out an old green amortization book to see how quickly they could pay off our house and how much extra it would take added on the principle to take a certain amount of months off of the loan.  I'm thankful that she talked with us about this, from a young age, to help us value being proactive to pay off loans.  

My parents have also always spoken with us about giving.  They are avid tithers, giving more than 10% of their income every single month.  Even on very, very hard months, they still give to the church.  When people need financial assistance, they are extremely generous and always quick to help in any way they can.  I believe that God has blessed this and because of that, Matthew and I really believe in tithing and giving to others as well.  Yes, my parents have influenced the way we budget our money.

When we first got married, I visited with our good friends Danny & Sara about how they budget, as well.  Sara showed me an excel spreadsheet of their spending and showed me how she entered their receipts and tried to stick to their alotted amounts.  She also showed me how she planned their menu and grocery shopping lists every month, in order to save the most money possible.  She probably had no idea over ten years ago that I would still be using a lot of what she taught me in our marriage!  Thanks, Sara!

A few years ago, I was headed north to do some shopping and called Matthew's mom to see if she needed anything.  She wanted a thin year-long calendar that has one month on each two-page spread to put her bills on.  This peaked my curiosity, so when I picked her up one, I got me one too.  And when I got to her house that evening, I had her show me how she put her bills on there to stay organized.  I loved it and have been using the same method ever since!  I'll show you all how she does it in a few days!

One of my other big influencers is Dave Ramsey.  I read his book "The Total Money Makeover" and was inspired to really try and get out of debt.  I will admit, we haven't been the best at this, but have been paying off several debts through the years and are still working hard to "work our snowball", as he says.  You can look forward to more information on that later this week, as well!  

Where do I start?

Alright.  Let's get this budgeting party started.  

Step 1: Collect some information.

The very first thing you need to do before diving into paying off debt, building your savings, menu-planning, coupon-shopping, and "budgeting" is to collect some information about your current finances.  We'll use these bits and pieces of information over the next few weeks to build a budget for July.

The first thing you need to know is what income you will have coming in.  

I am paid on a salary schedule, so every single month, I know exactly what my check is going to be.  Matthew is paid hourly, so we know that his check will be around a certain figure.  He gets paid twice a month and when I am making my budget, I always put that number as the lowest possible figure it could be.  When his check ends up to be bigger than I planned for, we put that money right on top of our debt snowball.  It's always better to plan lower than higher on the income side.  So on a piece of notebook paper, add all of your monthly income that is FOR SURE coming in.  I add a section for "extra income" also, and add it through the month (this would be my photography income, any side jobs Matthew might do, etc.).

Now, collect your bank statements from the last 3-6 months.

You'll need four different colors of highlighters.  

Mark your fixed debt items in one color.  This would be a mortgage payment, car payments, and any other loans you have.

Mark your other fixed monthly bills in another color.  This might be your utilities, any rent, any subscriptions, insurance payments, monthly charity donations or tithe, or anything else of that nature.

Use a third color to mark other necessary expenses.  This would include fuel, groceries, medicines, and anything else that you cannot cut out of your budget.

Finally, use your final color to highlight anything that would be considered unnecessary expenses...the extras.  Now, this isn't to say that there won't be any extra spending money at the end of each month, but this is where we cut first.  

If you're like me, you'll be floored at the amount of money you spent over the last 3-6 months on these unnecessary items.  When we're not tracking them, it's so easy to spend hundreds of dollars, $5-10 dollars at a time.

Once you've highlighted all of these items on your bank statements, add them to the same notebook paper that you put your income on.

Start with your debt items.  List the name of the debt and the monthly payment.

Then move on to your fixed bills.  Again, list the name of the bill and the monthly payment amount.  If your utilities aren't fixed, aim high.  For example, our electric bill is usually between $160-180, but has been as high as $300 in the winter.  I put it in our budget as $225 just to be safe.

Next, add your other necessary expenses...fuels, groceries, medications, subscriptions, etc.

That's it for today!  I hope you're feeling good so far about joining me in getting our finances back on track!  :)

Talk to you soon!

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