Most people cringe when they hear the word budget. The scarcity mindset kicks in as they flashback to their college days of eating ramen. I can’t help but wonder why so many people are avoiding a budget. Is it because deep down they are afraid of their guilty feelings when they see how much was actually spent and where? Is it the crutch they need to stay in their comfort zone?

The simple fact is that if you wish to build wealth and become debt-free, you need a budget.

Instead we should focus on changing the stigma around budgeting and get inspired in a different way that results in action and commitment. Maybe you could try reading someone who is not mainstream shoving old ideals down your throat about the way you should be or how you should spend your money. Because if you are smart about the necessities you get to do whatever the hell you want with the rest!

For this article, I would like to introduce some of the other tools we used which included redefining your budget, a well-known budgeting app, and a deliberate set time. This article gives a breakdown of this financial perspective in action.

Try a new perspective

It can be difficult to track every single daily purchase you make. Even if you’re successful, a budget may not stop you from spending. If all you’re using a budget for is to track what you’ve already spent, you’ll find yourself looking at the end of the month’s budget and feeling guilty that you overspent.

Instead of tracking every purchase with many categories, my suggestion is to focus on splitting up your income into three to four main categories: fixed costs (i.e. housing, transportation, insurance, groceries, etc.) guilt-free spending money and debt payments.

The primary purpose of a budget should be two things:

  1. To identify and structure your category spending limits
  2. And when you have debt, to evaluate your purchases and optimize your budget to find ways to shift unspent money to pay off debt when a category hasn’t been fully spent

start with a budget app

My favorite budget app is Mint because it is free and simple. This app is for both the people who haven’t a clue about budgeting and the nerds out there who actually like using charts, graphs, and other analysis methods.

I’m not going to get into specifics of Mint because others have explained far better. There are many FAQ’s and guides to help you dominate this. However, I will offer the suggestion to do the following in this order with whatever budget app you choose:

  1. Link all of your cards (and your spouses) to the account
  2. Categorize transactions back at least 2-3 months when you first start for a proper baseline
  3. Set a monthly spending limit for a few specific categories (i.e. based on previous trends, estimates, or what you feel is necessary

This data will be all you need to reflect on whether your spending decisions are supporting your best life. You HAVE to be disciplined to know how much you are spending on all categories in order to reconnect yourself to the important things in life (i.e. your financial freedom definition). Only then can you start cutting things you don’t need out.

The program has many bells and whistles but you can use as much or as little of it as you want. I don’t need to tell you no software is perfect nor am I here to debate what the best app is. Please just pick one and get started.

REcommended budget category limits

Once you have evaluated your finances, you then need to figure out some baseline numbers of how much you should be actually spending in each category. I encourage you to look around at whats recommended. Each person’s situation will be different.

Keep in mind, what the internet says your spending categories should be is based on average Americans. And last I checked, the majority of “average Americans” are in debt. Most of society will tell you that debt is OK. I do not believe that it is. Thus the reason for this article being a part of The Debt-Free Chronicles.

I like the following category limits for those in debt. It’s pretty much in line with the Dave Ramsey model of getting the F’ out of debt as quickly as possible.

The category names don’t matter but you get the gist.

Below is a snapshot of our budget breakdown throughout our debt-free journey as an example.

Yeah, we were serious

If you were to simplify this further, you would see the following categories looked like this:

  • Fixed costs – 48% of income
  • Debt payments – 39% of income
  • Guilt-free spending – 13% of income

The objective is to simplify your budget by reducing the number of categories rather than being overly specific on individual purchases. And to get real with yourself if you have a category that is way out of wack. The real progress happens when all extra $$$ goes directly towards your debt when a category limit is unreached.

Take a hard look at your budget

If your spending categories are much higher than suggested, ask yourself honestly what the reasons for that are. Does your budget indicate that you’re really committed to paying off debt? This act alone provides you an opportunity to make the necessary arrangements to make room for more debt payments.

Unexpected shit always comes up. We all know what it’s like to experience the unexpected car, medical, house or pet expenses that put you further behind. Of course, you can’t really budget for unexpected expenses. That’s what your $1000 emergency fund is for.

set a time to track, learn, and plan

I’m blessed with Fridays off and few responsibilities on that day. My typical Friday mornings involve coffee, reading, meditation, stretching, and some good ol’ financial learning. Thus, Financial Fridays were born.

Often, this financial time was less than 30 minutes. I would first start by checking all of my accounts and making sure there weren’t any surprises in the past week. Then I would quickly move to categorize my purchases in Mint and check my budget limit statuses. Lastly, I would search the internet or read some financial literature to sharpen my knowledge base in investing, debt payoff perspectives, credit card rewards, financial calculators, etc.

It was this intention that made a profound difference in getting excited about debt payoff. And it helped prevent me from stressing and tracking it during the week.

start now

Tell me a story about all of the reasons you can’t do it and why you’re different and I’ll show you thousands of stories of people like you (and those worse off) that made it work. 

When you know your budget and your spending habits, you can no longer make definitive claims about how you can’t afford things or how you’ll never be out of debt. The numbers will tell you everything you need to know.

This entire article can be summed up pretty much by the word discipline. Sure, we all would rather spend lavishly now but would that help achieve our greatest goals in life? You need to get crystal clear on your future selves (AKA Financial Freedom or the Rich Life) and what you want your marriage to look like.

Money cannot buy long term happiness but being financially free, whatever that means to you, can free your mind up to focus on living a fulfilling and kick-ass life without the chains that subconsciously hold you back.

Get a budget, set your intentions, and look for ways to pay more on your debt by buying things that only provide immense value to your life. Bring your financial freedom definition with you everywhere and revisit it often. There will always be excuses but you alone have the power to rise above.

I hope you enjoyed the final article of The Debt-Free Chronicles. Thanks for sticking it out until the end. Remember, if you have a debt-free story, I would love to hear it and feature it on the blog. Feel free to reach out to me and explain!