Budgeting Basics (Part 1): Laying Your Financial Foundation

Budgeting Basics (Part 1): Laying Your Financial Foundation

If you know me, you know I love budgets. Like, borderline obsessive about it. My spreadsheets are  simple works of art, delivering powerful, functional information that helps me get a handle on our daily spending and overall financial picture for the month. I can easily say that, without our budget, we would not have a home, my wife would not be a stay-at-home mom, and we’d most likely be BROKE. Now, before we jump into the details of getting your budget started, let’s talk about the basics.

Your Priority Filter

Over the years, I have learned that I can’t simply adopt someone else’s style of budgeting, because that person does not necessarily have the same life priorities as I do. While I do like having a solid structure to layout my financial plan with, I prefer foundational principles that guide my financial choices rather than hard and fast rules. I have realized that if you truly want to have your budget be a tool that frees you to live the life you want to live, you need to start with a list of priorities. Mine looks something like this:

  1. God
  2. Wife
  3. Kids
  4. Family
  5. Friends
  6. Church
  7. Other Stuff

Now, this is definitely not an all-inclusive list of priorities, but it does lay the basic foundation of how I would like to manage my life. They say that if you truly want to know someone’s priorities, just take a look at their checkbook (or credit card statement, these days) and their calendar. I want my checkbook and calendar to reflect the above priorities accurately, however, I often find that what I say my priorities are, are not necessarily lived out in reality. I find that I spend too much money on “Other Stuff”, or spend too much time with friends and not with my wife. Having a good list of life priorities can help me keep my finances in line with what is most important to me.

Start with writing out a list of priorities that you want to be reflected in your life. I know this does not explain how you are going to pay all of your bills, pay off debt and build wealth, but trust me, having these priorities in place will give you a clear direction for how to make every money decision you come across. Think of these priorities as a filter for your money. If all of your cash was falling form the sky, your money would be absorbed on the way down by these things, and you want your top priorities to be the first place your money touches before falling down to the next category. As your money filters down, less and less of it will go to the lower priorities, until you reach zero.

For example; I tithe my money as soon as the money become available, and then the rest goes toward necessities (at the moment). This reflects my financial priorities accurately, and helps me see that my money is going more toward my priorities, and less toward “other stuff” that is not as important to me.

Get It On Paper

I suggest taking a little time to sit down and write down your priorities before making a budget. This will give you some direction and allow you to make financial decisions on your budget that reflect your values and priorities. This list only needs to be a handful of things, and may not be the only priority list you make, but it’s a great starting point. Once you have a priority list, write down where your money currently goes. I have counseled a handful of people through this and know that this may take a little while, and can actually be pretty emotional, but it’s worth it to write down where every dollar has gone over the past month or two. This will give you an accurate view of your money, and allow you to compare your spending vs. your priorities. You may find that you are wasting a lot of money on things that don’t even make your list.

The foundation has now been laid. CONGRATS! I hope you have found this information helpful. Feel free to subscribe to this blog using the simple email form on the right. I will be continuing this series on budgeting and hope to have you along for the ride. In Part 2, we will discuss Tracking Your Income and Expenses.

Comments: What are your priorities? If you have not put your income and expenses on paper, what’s stopping you? Are your priorities and your money in sync?  Also, how do I get rid of all these dandelions in my grass? Seriously, these things are killing me…

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Comments

  1. michelle w says:

    a priorities list has seriously gotten us through a lot of decision making! Sometimes it’s ok to spend money on something in the name of “making a memory” (even if it otherwise seems frivolous) or give to the church even if money is tight. It all depends on your priorities! (that is of course if you are still paying all the bills! ;D )

    • Absolutely true. There are many things we sacrifice in some areas so we can spend money in others. Looking at our budget in terms of priorities makes it easy to say “no” to certain activities so we can say “yes” to the ones we really enjoy!

  2. I like the priority list. Before I ever did a budget, I did a little excersise where I wrote down all of my purchases for one whole month. Even if I spent five cents, I wrote it down. Once the month was over I reviewed my list and this helped me to prioritize what was important from what was not. I also saw where I was wasting money and was able to take that wasted money and throw it on my debt.

    • That’s a great way to get started. I will definitely be going into a process similar to that on Part 2 of this series. When we started, we had already been tracking our expenses for a few months, so we ended up looking at the totals and deciding where we wanted to keep spending our money, and where we thought we needed to cut. The decision was a little easier because we moved right away, and I got a job make $4 an hour less than before. So we ended up slashing a lot of frivolous spending out.

      Though, it’s funny, because when we moved and I was making less money, it felt like I got a raise. We stopped all spending in areas we didn’t care about, got on a meal plan, and were actually saving money as opposed to spending every dollar like before. Weird how that happens. I think I’m going to title my next post “give yourself a raise” ;)

  3. Just noticed that I didn’t see your name on your list of priorities? I used to think of others way before myself, but ended up feeling like I was always missing out. I have had to learn to be a bit more selfish in order to get the balance right. Just wondering if you are like I used to be, and could do with giving yourself a bit more priority?

  4. Jon, that’s a great observation. One thing I learned about myself is that I get joy out of serving others (not trying to sound pious). Budget-wise, I end up in the “other stuff” category. I allow myself $20 spending cash per month to blow on whatever I feel like. That has been enough for me for a few years and I have (almost) never felt like I am missing out. And as far as time goes, I love spending time with my wife, family, and friends, so I didn’t feel the need to put my myself on that list. Thanks for the comment!

  5. I agree with the priority list–it’s what helped me get started on the right track. It’s also why I’m planning a wedding even though I’m not out of debt yet–I think it’s great to make memories while you still can and not think back with a “what if”.

    • Completely agreed! I think many people who are following a plan to get out of debt get a sense of guilt when they spend money. In truth, we still have some student loan debt, but we are also planning a vacation in November. Blasphemy, I know, but I don’t feel guilty about it in the slighest, because we still have a solid plan to get out of debt soon and build wealth. But that’s another story… :)

  6. Budgeting priorities seem to be the everyday norm nowadays in the house. Priority list is essential. I can’t believe I lived without it for years.

    • Jai, isn’t it crazy looking back at your old financial habits and wondering how you even survived? I still don’t know what I ate in college, or how I managed to not overdraw my account every week?! It’s nice to be on the other side, but frustrating to think of the money I wasted without a clear plan. I’m excited to help others see the light and not have to make the same mistakes I did.

Trackbacks

  1. […] back to the budgeting basics series! Last week, we talked about creating a priorities list to use as a filter for where your money should go. I ended the post by suggesting that you should […]

  2. […] at the end and reverse engineering them to make them attainable. So far, you have put together a priorities list to help guide where your money should go and you have tracked your income and expenses so you can […]

  3. […] have asked why we chose to buy a home while in debt. It’s simply that we had a change in our priorities and buying a home moved to the top of our list. Sure, living in an apartment is a great catalyst […]

  4. […] that we both feel the same way after over 2 years in this home. It has served to help us follow our priorities and host many get-togethers with family and friends to enjoy. And we hope it will serve us well for […]

  5. […] once you have identified your priorities and resolve to get out of debt, I do recommend cutting back on excessive spending in areas that […]

  6. […] going, and if you are not saving money or paying down your debt, you need the make it a priority. Our priorities are our filter for decision making, and if saving money is not on the list, then when you have the opportunity to […]

  7. […] NOT mean you can afford it. You should spend within your budget and only spend money on your priorities. Any other spending is probably wasteful. Related posts:How Much Money Did You "Blow" On […]

  8. […] read through my budgeting basics, you would know that my first post EVER on this site was about laying a financial foundation. This included sitting down and writing out your priorities. For me, our priorities included all of […]

  9. […] analyzing every situation individually, and ultimately, your financial decisions should be based on your priorities. We decided that we would put the debt payoff on hold and save for a down payment. And soon after, […]

  10. […] focusing on a way to correct the problem. If you want a great way to begin a budget, check out the Budgeting Basics (Part 1) post on iHeartBudgets.net which gives you a 5-step program to help you begin a budget. It […]

  11. […] There are definitely ways to get a purchase into your budget if you find this purchase can take priority over another category in your […]

  12. […] are you long term goals? Sure, a huge net worth is going to be awesome, but then what? I suggest writing out your priorities and setting up 3, 5, 10 and 20 year goals to aim for. Once you have the big picture in mind, you […]

  13. […] are you long term goals? Sure, a huge net worth is going to be awesome, but then what? I suggest writing out your priorities and setting up 3, 5, 10 and 20 year goals to aim for. Once you have the big picture in mind, you […]

  14. […] all that, because freedom means doing what YOU want to do. Freedom means your money going toward your priorities, not toward things you don’t like, creating goals and reverse engineering them so you […]

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