You have decided to create a budget! That’s great! Maybe you are sick of having more month than money. Maybe you are living comfortably, but you know that you could be doing better. Maybe you are doing quite well, but you want to start saving more aggressively. Regardless of why you are creating/revamping your budget, we all need to start in the same place.
Figure out what your non negotiables are.
First off, let me be clear…these typically are NOT your bills. I know you need to live somewhere. I know you need to eat. However, this does not include your grocery bill or your mortgage.
I’m going to argue that this only includes the following items (if they pertain to you):
2. Saving for or replenishing your emergency fund (3-6 months of expenses)
3. Taxes if you are self employed
5. Health insurance (to a point…if you get the best rate through your employer, otherwise this would be a bill that you could possibly find a lower rate on)
The reasons these are non negotiable in my opinion is because they are too important to be missed and they are not items that can be changed to accommodate other expenses. Whether you want to or not, you can likely move to get a lower mortgage payment. You can negotiate a cheaper rate for your electricity (or once again, move to a smaller home to pay less in electricity).
Almost every bill you have CAN be decreased if it needs to be. If you belong to a religion that tithes however, your giving is usually set at a certain percentage rate of your income. Your emergency fund can/will vary based on what your current expenses are, but without an emergency fund, you are always going to be one emergency away from complete disaster. Taxes are a necessity and while they can go down based on your deductions, you will never stop paying taxes on the money you earn. Retirement is essential because you can’t count on your health, wealth or circumstances further down the line.
Everything else can be negotiated, sold, discarded, and/or deducted.
What are your non negotiables?
Go on to Step 2.
Step 1: Decide Your Non Negotiables
Step 2: Write Down All Your Monthly/Yearly Expenses and Prioritize them
Step 3: Starting from the top, create your budget
Step 4: Revisit your budget often. At least once a month, more if your situation changes.