September 03, 2011

Budgeting Basics Part 1: Why Having a Written Plan For Your Money Is So Important


The budget. It's something every household needs, but many choose to ignore. For many, budgeting often evokes negative feelings....ideas about never being able to do anything, never being able to buy anything or never being able to have any fun. I can't say I've ever specifically felt that way about it, but I was one of those people who simply didn't give it much thought.

However, at the very beginning of our marriage (almost 4 years ago), a chain of events occurred that dramatically changed our situation & we realized that we would no longer be able to not think about a budget.



Because of a serious medical issue, I was unable to continue at my job.  We went from 2 incomes to 1 income without having had time to plan for it. I still had $30,000 worth of student loans and we had a few thousand dollars worth of credit card debt.  At the same time, we had been {foolishly} building a house & we were supposed to close on the loan only a few weeks after my unexpected hospitalization.  At first, we tried to figure out how we could make it work & still be able to purchase the home. But the numbers simply didn't add up. 


Today, we view my past medical problems as a huge blessing, as they probably ended up keeping us from making one of the worst financial mistakes ever & sent us down a road towards true financial freedom.


We were introduced to Dave Ramsey & his principles & I can say without a shadow of a doubt that his teachings have changed our lives forever.  After reading his books "The Total Money Makeover" & "Financial Peace", my husband & I worked our tails off & were able to become completely debt free in only 8 months!  I admit, those 8 months were hard. We worked hard, we slept little & we didn't see each other very often. But, we had a clear picture of where we were headed & we knew that it would be worth it.


How did we do it?
  • We made a detailed, written budget & followed it, to the penny.
  • We both worked 2 jobs & we worked as much as possible. (For newlyweds, that was a hard one, but we realized it was going to be worth it!)
  • We transitioned to an all cash budget & used the basic envelope system to keep track of our money.
  • We lived on way less than we were making & poured every cent we could into paying off our debt.  (We cut out as many things as we could in our budget & still survive.)

We know that without a written, detailed budget (as Dave Ramsey says, giving every dollar a name, on paper, on purpose), we would not be where we are today,  financially speaking.  Having a budget not only helped us stay on track while we were paying off our debt, but it also helped us survive my husband's layoff, without having to touch our emergency fund.

Is creating a zero based budget easy? It may not be. It took us a few months to get it right.  But I would encourage you to not give up. And remember, a budget is something that's always adjusting, always moving. Check in often. Talk about what's working & what's not. Think of your written budget as a contract between you and your spouse & hold each other accountable.

In this series, I'm going to focus on a couple of budgeting basics:
  • Why it's so important to have a written plan for your money
  • How to create a zero based budget
  • and How it can make the most of even the smallest incomes.

If you think you may be interested in no longer letting your money control you, but rather, telling your money where to go & what to do, I'd encourage you to tune in to the next installment, where I'll share how we got started creating a zero based budget & how we transitioned to an all cash budget.

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