Personal Finance & Budgeting
Spend less than you make.
Our first lesson is the most important. It’s the foundation for all the rest. You must get this one right, or all the other lessons will not work well.
Many people shy away from budgets and numbers, but this is where folks learn the most basic understanding of how money works.
In Lesson 1–Personal Finance & Budging we look at:
Where to Start
Budgeting 101
Personal finance is just that, it’s personal. So, your monthly numbers are going to be different from your neighbor and from ours. But the goal is similar. Track what you made, track what you spent.
There are many different ways to keep track of your budget and you may need to try several to find which one works best for you. Here are a few ways to keep your budget.
Once you get the hang of keeping track of each dollar, it will become easier and more freeing as you’ll not fret about having to much month left at the end of your money.
Pen & Paper
The “Old Fashioned” Way
This is the most basic but can also be the easiest depending on your lifestyle.
Keep a notebook in your kitchen or office and update it when you get paid and when you spend online or in person.
Don’t worry about budget categories yet, we’ll cover that later.
Rows & Columns
MS Excel or Google Sheets
This method involves setting up Excel or Sheets to keep track of your income and spending.
If you have a credit card you can easily take those transactions and copy them in your document.
Here are 2 Google Sheets to begin building your budget:
Don’t worry about budget categories yet, we’ll cover that later.
Software & Apps
On Your Phone or Computer
Most premium apps allow you to connect your financial accounts to your budget categories.
Once transactions come in, assign them to the appropriate category. Some apps will do this automatically.
We recommend a “zero-based” budget which assigns every dollar of income to a specific line item.
Because of this, we recommend the following apps and software:
- mvelopes (we use this)
- Every Dollar
- You Need A Budget (YNAB)
Don’t worry about budget categories yet, we’ll cover that later.
One Size Fits One
Create a Strategy That Works For YOU
Whichever method you choose to start with, keep at it for one to three months to get into the habit of tracking your income and expenses.
If you’re like most people, you’ll forget a few here and there. This is ok though, no one is perfect. The point is to get started and to begin building a solid foundation so you can graduate to Lesson 2–Real Estate & Retirement.
BASIC BUdget 101
Your first budget should include the following basic categories:
- Food
- Clothing
- Housing
- Auto
- Other
- Emergencies
We’ll talk details later, but for now, just stick with the most basic of categories to get started and to keep things simple.
Begin building your Basic Budget.
Advanced budget 202
A slightly more complex budget might look like this:
- Food
- Store
- Eat out
- Clothing
- Housing Supplies
- Rent or Mortgage
- Auto
- Gas
- Insurance
- Maintenance
- Payment or New Car
- Gifts
- Birthdays
- Christmas
- Other
- Medical/Dental/Vision
- Entertainment/Recreation
- Education/Sports
- Vacation
- Emergencies
This is probably overkill for someone just starting their first budget.
Begin building your Advanced Budget.
Budget Timeline
It will take some time to set up your budget and get comfortable with it. For the math, column and row people it may only take a 2–4 months. For the creatives who shy away from number crunching it might take 3–6 months.
Whoever you are, stick with it and try different methods until you find one that works for you.
Remember, this is hard work and it will pay off, but you have to put in the time to learn the new system.
Months Minimum
Months Maximum
Books to Read
Dive deeper with these two books to get a better handle on personal finance and budgeting.
Remember, before you can get to Lessons 2–4, you really need to have a handle on your personal finances. This also includes getting out of debt and building a small emergency fund.
The Richest Man in Babylon
Author: George S Clauson
Each chapter is a fictional story about a different rich man in Babylon.
The key takeaways from Clauson’s book are:
- Don’t get into debt
- Get out of debt quick
- Pay yourself first
- Save a portion of all your earnings
- Invest a portion of all your earnings
- Let your money work for you
This book came out nearly 100 years ago and many, including Ramsey, borrow ideas from this book.
The Total Money Makeover
Author: Dave Ramsey
Ramsey gets many ideas from The Richest Man in Babylon which was published in the early 1900’s.
The key takeaways from Ramsey’s book are:
- Build a $1,000 emergency fund
- Use the debt snowball to get out of all debt quickly
- Build a 3–6 month emergency fund if you lose your job or most of your income
These are his “Baby Steps” 1–3. We diverge from steps 4–6.
basic emergency fund 101
Plan for Disaster
Before you start working on your debt, build a $1,000 emergency fund. This is money you don’t touch unless you have a true emergency such as:
- car breaks down
- family member needs medication or surgery
- unexpected loss of a job
Here are a few NON-emergencies:
- Christmas
- tires for the car
- eating out on vacation
Don’t keep this money in your “normal” bank account for 2 reasons:
- It only earns .01% in interest (approximately)
- It’s too easy to access
What you want is a Money Market account that has check writing abilities. This earns closer to 2%–3% interest (approximately) and it’s not in your normal account so it’s one step more difficult to access. But, because it has check writing abilities all you have to do is write a check for that real emergency, should you need it. There are many institutions that offer this but we like the options from Fidelity.
After building your $1,000 emergency fund you can then begin to tackle your debt.
In Lesson 2–Real Estate & Retirement we’ll begin by focusing on the advanced emergency fund which is a fully funded 3–6 months worth of savings. But for now, $1,000 will start us out in the right direction.
Emergency Fund Building Timeline
You need to save $1,000 for your starter emergency fund.
Your personal timeline will depend on your discipline and your current income.
If you’re well disciplined and have a good income, this could be as little as 1–3 months.
If you’re not disciplined and have a lower income, this could be 3–12 months.
Remember, you must stick with it if you’re going to complete Lesson 1.
Month Minimum
Months Maximum
get rid of debt–fast
Get Control of Your Debt
After building your budget and saving for your emergency fund, then you can begin to tackle that debt.
There are a couple of ways to go about paying down debt and reaching a new level of financial freedom.
- Arrange debt from smallest to largest (Debt Snowball Method)
- Arrange debt from highest interest to lowest (Debt Avalanche Method)
Ultimately, it doesn’t matter which one you choose, as long as you get it done.
From your budget you created you’ll have an idea of what surplus you may be able to throw at your debt each month.
While you’re paying off your debt, you should NOT be using your credit card!
If you have to use plastic, use a debit card so you don’t get into more debt.
Be sure to download our Debt Tracker to find out how long it will take to pay off all your consumer debt. Update it every time you pay off a debt and watch your debt melt away.
Overview
Debt Snowball
In this method we arrange the debt by the smallest amount to the largest.
- Focus on the smallest balance first, regardless of the interest rate.
- Pay as much as you can towards the smallest balance while paying the minimum payment on your other debts.
- Once the smallest balance is paid off, apply that same payment to the next smallest balance. This is in addition to the minimum payment you were already paying.
- Continue until you’re making your last payments against your largest debt
overview
Debt Avalanche
The only difference between the “snowball” and “avalanche” method is how we arrange the debt. In the “avalanche” method we arrange the debt by largest interest to lowest.
- Focus on the largest interest debt first, regardless of the amount due.
- Pay as much as you can towards the largest interest debt while paying the minimum payment on your other debts.
- Once the largest interest debt is paid off, apply that same payment to the next largest interest debt. This is in addition to the minimum payment you were already paying.
- Continue until you’re making your last payments against your lowest interest debt.
Months Minimum
Months Maximum
Timeline
Depending on how much debt you have and what you’re willing to sacrifice in the short term will determine how long it takes you to get it under control. When I say, “under control,” I mean that you have no more debt, except for your home.
Types of debt we’re out to eradicate:
- credit cards
- student loans
- vehicles
- payday loans
- medical
- retail (Home Depot, Sears, etc.)
For some folks it will only take 6 months because they don’t have much debt and they have higher paying jobs.
For others it could take 3 years (36 months) or more to tackle the debt problem.
Whatever the case, you need to get it all paid off as quickly as possible so you can move on to Lesson 2–Real Estate & Retirement.
Be sure to download our Debt Tracker to find out how long it will take to pay off all your consumer debt. Update it every time you pay off a debt and watch your debt melt away.
Debt Snowball Example
Let’s say you have 6 debts: $3,000, $1,700, $300, $2,800, $480 and $2,000. With the debt snowball method, you start with the smallest amount first, which looks like this:
| Loan Type | Amount Due | Minimum Payment |
| payday loan debt | $300 | $40 |
| retail debt | $480 | $20 |
| medical debt | $1,700 | $55 |
| student loan debt | $2,000 | $65 |
| car loan debt | $2,800 | $200 |
| credit card debt | $3,000 | $60 |
To keep things simple, let’s say you have $1,000 to pay towards your debt each month.
Month 1
In your first month, you’ll pay the minimum payments to debts 3–6 which comes to $400 of the $1,000. This leaves $600 for your first (and second) debt. After you pay $300 to your payday loan debt you’ll apply the last $300 to the retail debt.
$1,000 (monthly surplus) – $380 (minimum payments) = $620
$300 to payday loan debt = $0 debt.
$320 to retail debt ($480) = $160 left.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $300 | $40 | $300 |
| retail debt | $480 | $20 | $320 |
| medical debt | $1,700 | $55 | $55 |
| student loan debt | $2,000 | $65 | $65 |
| car loan debt | $2,800 | $200 | $200 |
| credit card debt | $3,000 | $60 | $60 |
| TOTAL PAID THIS MONTH | $1,000 |
Total paid: $1,000. Debt erased: 1. Next month you’ll have $1,000 to put towards the rest.
Month 2
Your first debt is gone! Congrats. Now just keep trucking.
$1,000 (monthly surplus) – $325 (minimum payments) = $675
$160 to retail debt = $0 debt.
$515 to medical debt ($1,700) = $1,185 left in medical debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $160 | $20 | $160 |
| medical debt | $1,700 | $55 | $515 |
| student loan debt | $2,000 | $65 | $65 |
| car loan debt | $2,800 | $200 | $200 |
| credit card debt | $3,000 | $60 | $60 |
| TOTAL PAID THIS MONTH | $1,000 |
Total paid: $2,000. Debt erased: 2. Next month you’ll have $1,020 to put towards the rest.
Month 3
Now you have two debts gone! You’re doing great!
$1,020 (monthly surplus) – $325 (minimum payments) = $695
$695 to medical debt ($1,185) = $ 490 left in medical debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $1,185 | $55 | $695 |
| student loan debt | $2,000 | $65 | $65 |
| car loan debt | $2,800 | $200 | $200 |
| credit card debt | $3,000 | $60 | $60 |
| TOTAL PAID THIS MONTH | $1,020 |
Total paid: $3,020. Debt erased: 2. Next month you’ll have $1,020 to put towards the rest.
Month 4
Now you have two debts gone! You’re doing great!
$1,020 (monthly surplus) – $260 (minimum payments) = $760
$490 to medical debt ($490) = $ 0 left in medical debt.
$270 to student loan debt ($2,000) = $1,730 left in student loan debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $490 | $55 | $490 |
| student loan debt | $2,000 | $65 | $270 |
| car loan debt | $2,800 | $200 | $200 |
| credit card debt | $3,000 | $60 | $60 |
| TOTAL PAID THIS MONTH | $1,020 |
Total paid: $4,040. Debt erased: 2. Next month you’ll have $1,075 to put towards the rest.
Month 5
Now you have three debts gone! You’re doing great!
$1,075 (monthly surplus) – $260 (minimum payments) = $815
$815 to student loan debt ($1,730) = $915 left in student loan debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $0 | $0 | $0 |
| student loan debt | $1,730 | $65 | $815 |
| car loan debt | $2,800 | $200 | $200 |
| credit card debt | $3,000 | $60 | $60 |
| TOTAL PAID THIS MONTH | $1,075 |
Total paid: $5,060. Debt erased: 3. Next month you’ll have $1,075 to put towards the rest.
Month 6
You still have three debts gone! You’re doing great!
$1,075 (monthly surplus) – $260 (minimum payments) = $815
$815 to student loan debt ($915) = $100 left in student loan debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $0 | $0 | $0 |
| student loan debt | $915 | $65 | $815 |
| car loan debt | $2,800 | $200 | $200 |
| credit card debt | $3,000 | $60 | $60 |
| TOTAL PAID THIS MONTH | $1,075 |
Total paid: $6,080. Debt erased: 3. Next month you’ll have $1,075 to put towards the rest.
Month 7
You still have three debts gone! You’re doing great!
$1,075 (monthly surplus) – $260 (minimum payments) = $815
$100 to student loan debt ($100) = $0 left in student loan debt.
$915 to car loan debt ($2,800) = $1,885 left in car loan debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $0 | $0 | $0 |
| student loan debt | $100 | $65 | $100 |
| car loan debt | $2,800 | $200 | $915 |
| credit card debt | $3,000 | $60 | $60 |
| TOTAL PAID THIS MONTH | $1,075 |
Total paid: $7,100. Debt erased: 4. Next month you’ll have $1,140 to put towards the rest.
Month 8
You have four debts gone! You’re doing great!
$1,140 (monthly surplus) – $60 (minimum payments) = $815
$100 to student loan debt ($100) = $0 left in student loan debt.
$915 to car loan debt ($2,800) = $1,885 left in car loan debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $0 | $0 | $0 |
| student loan debt | $0 | $0 | $0 |
| car loan debt | $1,885 | $200 | $1080 |
| credit card debt | $3,000 | $60 | $60 |
| TOTAL PAID THIS MONTH | $1,140 |
Total paid: $8,240. Debt erased: 4. Next month you’ll have $1,140 to put towards the rest.
Month 9
You have four debts gone! You’re doing great!
$1,140 (monthly surplus) – $60 (minimum payments) = $1,080
$1,080 to car loan debt ($1,885) = $805 left in car loan debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $0 | $0 | $0 |
| student loan debt | $0 | $0 | $0 |
| car loan debt | $1,885 | $200 | $1080 |
| credit card debt | $3,000 | $60 | $60 |
| TOTAL PAID THIS MONTH | $1,140 |
Total paid: $9,380. Debt erased: 4. Next month you’ll have $1,140 to put towards the rest.
Month 10
You have four debts gone! You’re doing great!
$1,140 (monthly surplus) – $60 (minimum payments) = $1,080
$805 to car loan debt ($805) = $0 left in car loan debt.
$335 to credit card debt ($3,000) = $2,665 left in credid card debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $0 | $0 | $0 |
| student loan debt | $0 | $0 | $0 |
| car loan debt | $805 | $200 | $805 |
| credit card debt | $3,000 | $60 | $335 |
| TOTAL PAID THIS MONTH | $1,140 |
Total paid: $10,520. Debt erased: 5. Next month you’ll have $1,200 to put towards the rest.
Month 11
You have five debts gone! You’re doing great!
$1,200 (monthly surplus) – $0 (minimum payments) = $1,200
$1,200 to credit card debt ($2,665) = $1,465 left in credit card debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $0 | $0 | $0 |
| student loan debt | $0 | $0 | $0 |
| car loan debt | $0 | $0 | $0 |
| credit card debt | $2,665 | $60 | $1,200 |
| TOTAL PAID THIS MONTH | $1,200 |
Total paid: $11,720. Debt erased: 5. Next month you’ll have $1,200 to put towards the rest.
Month 12
You have five debts gone! You’re doing great!
$1,200 (monthly surplus) – $0 (minimum payments) = $1,200
$1,200 to credit card debt ($1,465) = $265 left in credit card debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $0 | $0 | $0 |
| student loan debt | $0 | $0 | $0 |
| car loan debt | $0 | $0 | $0 |
| credit card debt | $1,465 | $60 | $1,200 |
| TOTAL PAID THIS MONTH | $1,200 |
Total paid: $12,920. Debt erased: 5. Next month you’ll have $1,200 to put towards the rest, but you won’t need it all!!!
Month 13
You have five debts gone! You’re doing great!
$1,200 (monthly surplus) – $0 (minimum payments) = $1,200
$1,200 to credit card debt ($1,465) = $265 left in credit card debt.
**Bold items reflect a payment or change.
| Loan Type | Amount Due | Minimum Payment | Pay this month |
| payday loan debt | $0 | $0 | $0 |
| retail debt | $0 | $0 | $0 |
| medical debt | $0 | $0 | $0 |
| student loan debt | $0 | $0 | $0 |
| car loan debt | $0 | $0 | $0 |
| credit card debt | $265 | $60 | $265 |
| TOTAL PAID THIS MONTH | $265 |
Total paid: $13,185. Debt erased: 6.
YOU DID IT!
It took 13 months of hard work, sweat and tears, but you did it!
downloads
Get ’em While They’re Hot
basic budget
Download our Basic Budget.
Advanced budget
Download our Advanced Budget.
debt tracker
Download our Debt Tracker.
Summary
Personal Finance & Budgeting
Don’t focus on all 3 areas at once (creating a budget, building your emergency fund, and paying off debt). Focus on them one at a time. You’ll be much more likely to succeed if you do.
Don’t get down on yourself if you mess up and have to come back to it 6–36 months later. (Hopefully not 36 months though!)
Once you’ve got budgeting down, saved your initial emergency fund of $1,000 and paid off all your debt (congratulations BTW!!!), you’re ready to take on Lesson 2–Real Estate & Retirement.
Remember, if you have little debt, love numbers and have a higher paying job Lesson 1 could take as little as 9 months. And if you have loads of debt, hate numbers and have a lower paying job this lesson could take over 4 years. That’s ok though. Don’t get down on yourself or quit.
It’s important to keep moving forward, even when it feels like the whole world is against you. It will be worth it, we promise!