Budgeting 101

Living Within Our Means, Ensign – January 2008

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Budgeting 101

A Beginner's Guide

Written by Cheri Stirling

Budgeting is a dirty word for many people, but one of the biggest factors in being temporally prepared truly is being able to maintain a budget. The next couple of weeks, we are focusing on how to create and manage a budget that works best for you and your family. This week, we want to focus on what a budget should look like, how it works, and some of the options you have available to you!

“I bear witness—and I know that the witness I bear is true—that the men and the women who have been absolutely honest with God, who have paid their tithing, … God has given them wisdom whereby they have been able to utilize the remaining nine-tenths, and it has been of greater value to them, and they have accomplished more with it than they would if they had not been honest with the Lord.”

Heber J. Grant

Start with the Negatives

To set up a functional budget, you have to start with how much is going out of your account, before you do any additional spending. This includes everything from your housing, insurance, phone bill, and various subscriptions you may have. I suggest going through the last couple of months on your online banking, and listing all of those bills that are reoccurring, because those are the things that you will want to be keeping track of on your budget.

Pay Tithing First

We know that the Lord promises to bless us as we obey His laws, including the Law of Tithing. Tithing gives us the opportunity to sacrifice, and in turn, for the Lord to bless us!

Living Off the Rest

“The Lord has blessed us with everything we have, and He requires that we be wise and accountable for these blessings. This means that we use our resources responsibly. We need to remember that we may have earned something, but we did so only with the life, strength, resources, and help that Heavenly Father has given us.” (Jim Jenkins & Jerry Borrowman)

The last step may seem tricky, especially if budgeting is new. If there are a lot of bills that are taking the majority of your income, living off the rest can be a big challenge. Living within our means means that we aren’t stealing from the next paycheck to get through this one.

Find a Budgeting Method that Works for You

There are sooo many methods to budget out there. The most important part is that your method works for you. Perhaps you need to break everything into categories to be able to track how you are spending those hard earned dollars. Here are some different methods or techniques that you could look into:

Envelope Method —

This is how I started out with learning to manage my money, especially in college, when I didn’t have much (if any) income. For this technique, you make cash withdrawals for the week or some other specific time frame, say each paycheck. If you are just learning how to budget, financial experts recommend you even label specific envelopes with the cash’s intended purpose. So you would have an envelope for bills (or break them down into specific bills), an envelope for groceries, one for gas, one for entertainment, etc. The cash can be redistributed as needed, but you have to stay within the allotted cash amount for the time frame. Any extra can be saved, or carried over to a future week. This helps bring a physical sense to the amount of money being spent, and many people are more careful about spending cash than they are card. This technique is great especially if you don’t have a lot of electronic bills yet, or if you pay the big bills electronically, and then give yourself a cash “allowance” for your variable expenses.

Dave Ramsey — Snowball + Zero Based Budgeting

This method is super popular, especially for those who are just starting their own budget. It helps you focus on eliminating debt quickly, and understanding where exactly your money is going. Dave recommends throwing as much money at your debt as you can, so you can become debt free and start building real wealth. He recommends paying off your smallest debts first, and then taking that payment, and instead of including it in your regular spending, start increasing payments to the next smallest debt. This helps pay off things more quickly, and cut down on money spent on interest. Thus, the “snowball” nickname. By the time you get to your largest debt remaining, you are able to devote much bigger chunks to the remaining balance. He also recommends using Zero Based Budgeting. This means that at the end of each pay period your account is at 0. You have saved or spent every dollar, so every dollar is accounted for. Dave also has a free app (There is a paid Pro version, but the basic app is free!) called Every Dollar that you can check out here. It has very specific categories, where you can adjust as needed, but keep track of where every dollar goes each month.

50/30/20 Method —

Using this method, you split your finances based on these percentages. Fifty percent of your income goes towards your needs. Thirty percent goes to savings or debt reduction. The remaining twenty percent goes towards your wants. This one is pretty straight forward, but doesn’t have a lot of wiggle room if you stay true to the percentages.

80/20 Method —

This technique is a simplified version of the previous method. Here, 80% of your income goes to expenses, and 20% goes to savings.

A budget sets a plan for how you want your money to be spent. Finding the budgeting method that works best for you will help you become more financially fit. Be sure to check back next week for tips on how to tighten up your budget!

Resources:

- Heber J. Grant, Conference Report, Apr. 1912

- Dave Ramsey, Money Makeover

- How to Use the Cash Envelope Method

Living Within Our Means, Ensign – January 2008