Exploring what it means to be frugal I think back to my own journey of saving and budgeting. Check out my post on being frugal. I really didn’t know what it meant to budget or if it was even necessary to budget. What strategies should I use to get started. Here’s my easy guide to identify your need to budget.

My Journey

My idea of budgeting was tracking my income and expenses.

Move into my first apartment, set some money aside, money for medical bills, put some money away. Have kids, put a lot of money away. Buy a home put some more money away.

I was budgeting, right! No I was only monitoring money coming in and out. When I really needed to budget I wasn’t sure where to start.

Without computers and Internet (This was the early 90s), finding ways to start and maintain a budget was limited. I came across a book at the grocery store, which had pages to record monthly income and expenses so I picked it up.

The book had tips for creating a budget this was an eye opener for me. I went from just writing down our spending to analyzing every purchase we made. Since I needed to write everything down it became apparent where the money was going and most of it was to things the family didn’t need.

Finally, I was able to create a spending plan. In a few short months I had the money I needed for a down payment and we went out house hunting.

I wish I could say that I was budgeting pro, but no. I kept sliding in and out of budgeting and only doing it when I wanted a big purchase and needed more cash to do so.

Budget Guide

Need to know how much you earn and spend? Is big purchase in your future? Do the kids need to go to college? Do you want to retire? Have the traveling bug?

If you answered yes to any of the above questions, then you need to budget.

Choosing a budget

There are many different thoughts on what is the best way to budget and save, but really as long as you have a plan that is all that matters.

I decided to use the Dave Ramsey Method. If you aren’t familiar with his work check out his website at www.daveramsey.com (I am not affiliated with his site, I just like his strategies). Although, I use some of the strategies I am not a die hard fan. There are a few things that I don’t use just because they don’t work for me an my family.

Searching budgeting on the internet will result in many other strategies. Check them out and find one that fits your needs.

Dave Ramsey outlines 7 baby steps for financial freedom. If you are new to budgeting you should follow his steps to the letter, don’t skip over any (I’ll add some caveats here in a minute). Think about the baby steps before you create your budget.

Where are you in the budgeting journey? Are you in debt, have no money in your savings account, or living paycheck to paycheck.

Baby Steps explained

Step 1: Emergency Fund

Have a $1000 emergency fund. This isn’t fun money or something you should be taking from when you want a new phone.

This is for true emergencies such as a car breaking down or a leaky faucet. Dave Ramsey recommends having this money in a separate but available account.

You don’t want this money getting lost in your other funds. I actually keep mine in cash hidden in my house, because if my husband sees the money in the account he will want to spend it.

In order to start your emergency fund try selling unused items or taking on a side job. Once you have your emergency fund money move to step 2.

Step 2: Snowball

Pay-off your debt with the snowball effect. At this time, I only have one debt and I could pay it off easily. I owe my orthodontist, but for some reason I don’t want to pay it off until my treatment is completed and the expense is less than $200 a month and will be paid off in a few more months.

There are many strategies around paying off debt such as, Avalanche, snowfall, balance transfers, etc. I prefer Dave’s way. Using the Ramsey method you list all your debt (credit cards, student loan, car payments, medical bills, etc. except mortgage payment) in order from smallest to largest.

Include the minimum payment and interest rate. You will start paying off the smallest balance first and minimum payments on the remainder. The only time you will worry about interest rates is when you have two identical balances, then pay-off the higher interest rate one first. Once you pay off the smaller debt, you will add this amount to the next bill and continue in this way until all your debts are gone.

Celebrate! Your debt is gone. Best of all the money you were using to pay these bills will be the money you use to create your step 3.

Snowball example

Debt Min payment Balance Payment Medical bill 185 935 185 per month Credit Card 29 2000 29 + 185 Car Loan 500 32000 500+29 + 185 Debt snowball



In the above example the medical bill is the smallest payment. First pay the $185 (and any other money you can pay by saving in other areas). Therefore the credit card and car loan will get the minimum payment.

Once the medical bill is paid off you add that amount to the credit card for a payment now of $214. Continue paying off the credit card until the balance is zero.

Then add that amount to the car payment. You are now paying $714 a month. Soon all your debts will be paid.

Step 3: Emergency Fund

Create a 3-6 month of expense emergency fund. This is for 3-6 months of living expense incase you are suddenly without an income because of loss of job or other major emergencies.

This is the step I am currently on. I do have a plenty of money set aside and we will be okay if either my husband or I lose our jobs, but I am also using this to cover any unexpected house repairs.

Step 4: Retirement

Invest 15% of household income toward retirement. My husband and I work for companies that provide matching retirement funds and we are contributing our maximum allotment. However, if your company doesn’t have a matching fund you need to seek advice on the best investment fund.

We probably do have 15% of our income going to retirement, but we decided that we will want to have a separate retirement fund, as we started contributions later then we should have and will fall short when retirement comes. Plus I would like to retire early due to health issues.

Step 5: College Fund

Save for children’s college fund. Just like in the airplane when they say take care of your oxygen mask first then assist your children, this is the same idea. Make sure you have done steps 1-4 before doing this step. In my case my children are grown and we have all completed our college careers. If you don’t have children or a need to save for college skip this step.

Step 6: Pay off Home

Pay-off your home early: I skipped some other steps to get to this one. I am already making extra payments to my mortgage even before I found Dave Ramsey and the payments were already allotted so I just see them as a part of my mortgage payment.

A home is probably the biggest purchase you will make in your life and will take anywhere between 15 and 30 years to payoff (See Dave Ramsey’s site for information regarding purchasing a home). Therefore, much of your money is tied up in paying off a home.

In our case we had circumstances that forced us into a 30 year fixed loan. This is why I wanted to make extra payments. At the schedule I have us at right now we will be paying off more to the principal then to the interest in less than two years.

I would recommend that you follow Dave Ramsey’s advice, as I’m sure he wouldn’t agree with the way we are doing things, but this works for us.

Step 7: Build Wealth

Build wealth and give. You have no debt; you own your home so now you can do whatever you want. Well not really, but that sounds so good. You still have other bills (Utility, insurance, and of course taxes); don’t forget to continue to pay those. You have developed wonderful skills by now and you know what you can and cannot due with your money.

In part two I will discuss Dave Ramsey further (this is the area where I don’t follow his recommendations) and how to set up your own budget, and ways to save on certain expenses.

Do you budget? Share some of your budgeting success or failures.