The idea of budgeting can seem a little intimidating (and even scary) if you’ve never done it before. The fact is, budgeting is essentially just looking at how you already spend your money, and deciding how you want to start spending your money from now on.
The best part is, budgeting doesn’t even have to be hard. If you are willing to face what you have been spending, and stop looking at your bank account with one eye open, it can be an incredibly freeing (and even enjoyable) process.
If you are a visual learner, like to keep things simple, or you just adore pretty colors, then you are going to love this budgeting method! Let’s get started:
1. Print out your most recent bank statement.
I want you to use your actual statement, not just a printout of your recent transactions, so you can see every single purchase you made for an entire month. This will be easy if you get paper statements in the mail (if you keep up with them, that is.) Or, if you get e-statements (if you don’t receive mail from your bank every month, then you probably do) you can find yours usually in your online banking system. If you can’t figure out how to access your statement, give your bank a call and they will point you in the right direction in no time.
2. Grab a multi-pack of highlighters (with at least three colors).
You’re going to need a different color for each category. You can get this 6 pack off of Amazon for a few bucks by clicking here.
3. Decide on which categories you would like to analyze.
I like to look at groceries, gas, restaurants, and bills primarily. If you do a lot of shopping this would be a good category to include too.
4. Assign each category to a different highlighter color.
For example, yellow = bills, orange = restaurants, etc.
5. Pick a category, and start highlighting.
I like to start with bills since it’s usually the easiest! Go through each page and highlight the entire line every time you see a bill. Your mortgage, phone bill, electric bill, etc. Even if you wrote a check, highlight the check too.
6. Repeat step 5 for each category you have.
Go one at a time until every transaction is highlighted. You will probably miss a few here and there and have to go back, but that’s ok! They will be easier to spot the more transactions you have highlighted.
7. Once every transaction is highlighted in its certain category, pick a category and add up all the transactions.
Every time you see yellow, for example, add the numbers up until you’ve found all the yellow transactions. Write the total down.
8. Repeat step 7 for each category.
You should now have a total written down for each different category. This is the amount you spent last month in each category.
9. Look at your totals.
Do the numbers surprise you? Did you spend way more on eating out than you realized? Are you surprised to see your bills add up to so much? Are you proud you did better than you thought on shopping?
10. Use the totals you added up as a starting point for what you would like to spend next month.
These numbers help you to see what you are actually spending on each category, and help you to set a goal for what you would like to spend in the future. For example, if you spent $500 on restaurants last month, it is probably not reasonable to set a goal to spend only $50 next month. Shoot for something that will challenge you, but will not be too hard that you will give up and completely derail your progress. Even if you still spend $250 on dining out next month, you’ll have already saved half of what you spent the month before!
The highlighter method is still my favorite way to budget. I love how easy it is to actually ‘see’ what I am spending each month, and this method also feeds my love for office supplies. Have you tried this method before, or do you have your own method you love to use? Share your story in the comments below!