Budget Overwhelm: The simple 10 step plan you need
Ever plan to do it all and end up accomplishing exactly nothing? You want to build your budget, but it’s just too easy to get overwhelmed.
It happens to all of us, whether it comes to cleaning the house, cooking dinner, trying to lose weight and especially budgeting and finances. In an attempt to get finances under control you pull out your budget, drag out those stacks of bills, open spreadsheets…and feel completely overwhelmed when you look at the balances.
This was me, so many times. I would look at the pile of bills and it would just feel so hopeless. Feeling guilty for overspending and overwhelmed by the gap between what I had coming in and the much larger amount I needed to pay out each month. I couldn’t begin to see a way out. It is so much easier to ignore it and hope that in the future things would just sort themselves out.
Spoiler alert: They didn’t. Not until I actively made a start. Pushed through the guilt and kept going.
Believe me when I say, it’s not going to happen overnight. It might not even happen in the next six months, the next year, or (sorry) the next five years. Getting a handle on your finances is a step-by-step process. It’s a life change. It’s not a button you flip and BOOM: Financial Success Achieved! Baby steps, you guys.
You’ve got to be methodical, even a little bit of a geek (budget nerd alert, here!) to get your finances to where you want them to be. It means taking baby steps. It means breaking the process down into manageable goals and tasks.
Ready to get started? Here’s what I want you gotta do to build your plan and break the budget overwhelm!
1. Set a Time
Before you even START worrying about how to build your budget, the first step you need to take is simply scheduling a time to deal with your finances. I want you to treat this like any other appointment—you wouldn’t procrastinate a doctor’s appointment, a dentist appointment or a meeting boss, right?
If you really want to get a handle on your finances and start seeing real, tangible progress on your debts, you need to block out the time for the project. This needs to be top priority! Schedule a babysitter, clear a spot in your house, and sit down with your spouse. Give yourself at least a couple of hours to go through EVERYTHING! Make this your #1 priority!
Side Note: This is NOT the time for blame, guilt, procrastination or any other crap that will instantly kill your progress. No looking back, it’s time to start moving forward!
2. Assemble All Your Bills
Before your appointment, which you’ve now blocked out on your calendar, I want you to gather ALL your bills. Find the red ones, the white ones, the statements you haven’t opened because you didn’t want to face them. Assemble the login information for your online credit card accounts, your mortgage, your bank accounts and any other online bill paying services you use.
Maybe it sounds obvious, but do you know exactly how much you bring home each pay day? Assemble your most recent payslips if you aren’t sure. Find every single bill you need to pay and each monthly statement you receive. I promise, this is the most overwhelming part. It’s all coasting downhill from here!
3. Write Down Your Income
Now we’re ready to begin to get your budget and finances in order!
The first step you’re going to take is to figure out your income. If you only earn money from a salaried job, this is pretty straightforward. But, if you earn from other sources (say, a side hustle, online, or part time jobs) you’ll need a strong idea of what you earn there as well.
If you earn tips, bonuses or other extra income at your job, only figure in the minimal amount you expect each month. Yes, some months you might get an extra hefty tipper in your section or you might receive a holiday bonus, but go with your typical monthly earnings.
Make sure you include any benefits, such as child benefit, or income support. Write down your money in.
4. Write Down Your Expenses
Now, write down all your fixed expenses going out. Fixed expenses are the items in your budget remaining pretty much the same from month-to-month. These are usually rent, utilities (if you use a budget billing plan to help keep the amount fixed), phone, cable/internet and insurance.
You might also have additional expenses such as a retirement contribution, a car payment, loans, credit cards and childcare bills. While these items may vary, the minimum payments often stay fairly consistent each month. Write down your regular, minimum monthly payment, as well as the total payoff amount for each of your expenses.
5. Track Your Spending for the Past Month
Pat yourself on the back, because you created the basic framework to build your budget!
Now, it’s time for the variable expenses. These are items like food, entertainment, gifts, shopping—basically any item that’s inconsistent from month-to-month. Go through your bank account and take a look at all of the items you spent on in the last month (assuming it was a typical month, if not, you may want to look back over two or three months to get an accurate picture).
Some banks feature the ability to sort spending by category; for example, groceries or dining out. This makes figuring out categories super easy, but if your bank doesn’t offer this feature, create your own categories and write the amount spent in each section. You want to get an overall portrait of how much you spend each month. Between your fixed and variable expenses, you should write down every place you spend money.
6. Look for Areas to Cut
Now it’s time to cut! Let’s look at areas of your budget where there’s some wiggle room. First, examine your fixed expenses. They may seem solid, but I want you to really examine the statements. Are you being overcharged for services? Could you switch to a lower-use plan? This may mean you need to place calls to each supplier to see if you are eligible to switch, but even if you are why not ask about better rates?
Most customer service departments have freephone numbers and unless you have only been a customer for a few months may be happy to switch you to a better deal and keep you as a customer for longer. Able to leave, great (speak with the customer retention department) or take time to check out price comparison sites online. The savings can be huge especially if you haven’t shopped around in a while.
Then, look at your variable expenses. Are you surprised by any of the areas? When we first put together our budget, I remember noticing how we spent a huge amount more than I expected on eating out! Sometimes when you see it in black and white it becomes clearer.
Set a budget for each area. This may mean drastic cuts, or you may want to work gradually: cut your grocery budget by 10-20% the first month and see if that’s liveable. If it works, cut a little more the next month.
7. Consider Operating on Cash Only
Many people find when they first start budgeting, it’s easier to work with cash. Parting with cold hard cash is much tougher than using your debit card. It is so easy with contactless cards to lose track of the small expenses than soon mount up! When the cash is gone, it’s gone. That’s all you can spend for the month.
If you’re up for the challenge and ready to get serious, either use cash for all your expenses, or only your variable expenses. If you’ve set up automatic bill-pay on your fixed expenses (which saves you money and fees), let them debit your account as usual. Use cash for the expenses you pay in-person, like groceries, trips to the hairdressers, going out with friends, and so on. Separate the cash into envelopes or mark it with paperclips and notes. Once cash is gone from the envelope, you’re finished spending in that particular area for the month.
8. Stop Taking on More Debt
The next step is to commit, right now to stop taking on additional debt until your current debt is paid off. This means no more using the credit card, no more lines of credit or shopping with your retail cards. It’s tough, but if you really want to get out of debt and stop your budgeting overwhelm, you’ve got to stop debt from piling up! Reverse the trend!
9. Start to Tackle the Debt Mountain
OK, maybe you aren’t quite as bad as me. But my multiple credit cards, overdraft, and loans felt like a mountain to tackle for me. Even the smallest step forward felt like I wasn’t making any progress.
The first thing I did was implement the snowball method. I started by putting all the credit card balances in order of size. Completely ignoring the interest rate charges for now. Each month I would pay all the minimum payments on each credit card and then anything extra would go on the card with the smallest balance. As your debt gets smaller your payments get bigger. You see progress quickly! Within a few months I had cleared my first credit card debt which felt like a huge win and my motivation to clear the next was sky high!
One step forward, two steps back. Nothing, absolutely nothing, kills motivation more when you are working hard to clear your debts than your credit card company writing to tell you that are increasing your APR. It’s just not fair, right? Yep, I know a really-childish response. It’s enough to make you want to go shoe shopping (maybe that’s just me) Instead I called them. This is the thing, you don’t have to accept the increase. You won’t be able to use your card, but the interest charged on the debt will remain at the lower level. Huge win!
On the back of that win I decided to call the credit card company with the largest debt. I had already committed to not using my cards so figured it was worth a call to see if they would reduce my interest rate. They could see for the last four months I had only been making minimum payments. I explained I was struggling with my bills and asked if there was any way they could help. In a matter of minutes the interest charged on my account was reduced from 24.99% to 2.3%. I could no longer use my card and I had to make the minimum payments or there would be further charges. That’s it! I couldn’t believe one free phone call was saving me literally hundreds of pounds in interest charges every single month.
10. Save Up for Emergencies
Now, I know you’re probably feeling a little excited—there’s a light at the end of the tunnel, right? But what will happen if the car fails an MOT, your husband falls off a ladder and sprains his ankle, or washing machine breaks down? You’re going to get out your credit card, apply for a loan or take out a payday loan, right?
WRONG. This is why it’s so critical you build an emergency fund. If you’re serious about getting your finances under control, you must set money aside for emergencies. A good rule of thumb is £1,000, which is enough for most minor catastrophes, but doesn’t take a lifetime to save. Before you start paying down your debt, put away £1,000. Touch it ONLY FOR EMERGENCIES (a new pair of shoes, a holiday or concert tickets aren’t emergencies).
I promise, budget overwhelm doesn’t need to be stressful or insurmountable. It’s simply a matter of breaking down the budgeting process into small action items, and easy-to-follow steps. You can do this!
Think of your dreams and goals for your family—whether it’s spending less time working and more time together, buying a house, having kids or going on great holidays, you can have it all! First, though, you need to get your budget under control. Keep your eye on the prize and focus on what your budget will do for you and your family. Today’s the day! Let’s take the overwhelm out of your budget!