How Do I Make A Budget And Stick To It?

The Ramsey Show Highlights

14 Feb 202004:25

Summary

TLDRIn this segment, Sam discusses the importance of budgeting, especially for new parents. He advises creating a budget as a 'guardrail' to prevent overspending, not a 'straitjacket'. He suggests setting limits on categories like groceries and entertainment, with a clear 'why' behind these limits, such as providing a better life for a newborn. Sam recommends using the EveryDollar app to track expenses and emphasizes that a budget gives permission to spend within set limits, fostering a sense of control and purpose in financial planning.

Takeaways

👨‍👩‍👧 Congratulations on the new baby! It's a great motivator to start focusing on financial planning.
💼 A budget is not a straitjacket but a guardrail to keep financial decisions on track.
🧮 Start by estimating your spending on categories like groceries and entertainment, then adjust based on actual expenses.
🛒 Be aware that you likely spend more on groceries than you think, so consider increasing your initial budget for that category.
🎬 Set specific spending limits for each category, like $50 for entertainment, to help control overall spending.
💡 The reason for budgeting should be a 'why' that is meaningful, such as providing for your child's future.
🚫 A budget helps you say 'no' to unnecessary expenses and 'yes' to those that align with your financial goals.
📱 Use budgeting tools like the Every Dollar app to track and manage your spending throughout the month.
🤝 Ensure both you and your spouse are on the same page regarding the budget to maintain consistency and commitment.
🌟 Having a clear and noble financial goal, like ensuring a good life for your child, can make sticking to a budget easier and more rewarding.

Q & A

What is the main concern of Sam in the script?
-Sam is concerned about his financial standing, especially after having a baby, and is looking for advice on how to create and stick to a budget.
What is the first step Sam should take in creating a budget?
-The first step is to sit down with his wife and decide on the amount they want to spend in various categories such as groceries and entertainment.
Why does the speaker suggest increasing the grocery budget initially?
-The speaker suggests increasing the grocery budget initially because most people underestimate their actual spending, and it's important to accurately reflect real expenses.
What is the purpose of setting a specific entertainment budget?
-Setting a specific entertainment budget helps Sam and his wife prioritize their spending and align it with their bigger financial goals, such as getting out of debt and providing for their child.
What is the significance of having a 'good why' when creating a budget?
-Having a 'good why' provides a compelling reason for sticking to the budget, making it easier to resist overspending and stay focused on the long-term goals.
How does the speaker describe the role of a budget in financial management?
-The speaker describes a budget as a 'guardrail' that prevents one from going off track financially, rather than a straitjacket that restricts all spending.
What tool does the speaker recommend for tracking the budget?
-The speaker recommends using the 'Every Dollar' app, which is free and can be set up in about 10 minutes to help track and manage the budget.
Why is it important for Sam and his wife to be on the same page regarding the budget?
-Being on the same page ensures that both partners are working together towards the same financial goals, which is crucial for the success of the budget and maintaining harmony in their relationship.
How does the speaker suggest Sam should feel about the money they do spend within the budget?
-The speaker suggests that Sam should feel permission to spend within the budgeted limits, without guilt or weirdness, because it aligns with their agreed-upon financial plan.
What is the ultimate goal of budgeting according to the speaker?
-The ultimate goal of budgeting, as per the speaker, is to achieve a bigger, more noble goal than simply buying more things, such as creating a great life for the family and the new baby.

Outlines

00:00

👨‍👩‍👧‍👦 Starting a Family Budget

Sam shares his concern about his financial situation after the birth of his first child. He seeks advice on creating and sticking to a budget. The response emphasizes that a budget is not restrictive but rather a 'guardrail' to prevent overspending. It suggests setting limits on categories like groceries and entertainment, and adjusting the budget based on actual spending. The budget is framed as a tool to achieve bigger goals, such as getting out of debt and providing for the child, rather than as a punishment. The importance of tracking expenses and having a shared understanding with the spouse is highlighted, along with the use of budgeting apps for convenience.

Mindmap

Keywords

💡Budget

A budget is a financial plan that allocates future income toward expenses, savings, and debt repayment. In the context of the video, the speaker emphasizes the importance of creating a budget to manage finances, especially after the birth of a child. The speaker suggests that a budget is not a straitjacket but rather a 'guardrail' to prevent financial mismanagement, using the example of setting a specific amount for groceries and entertainment to ensure financial stability and to prioritize the family's needs.

💡Financial Standing

Financial standing refers to an individual's or family's economic status, including their income, expenses, assets, and liabilities. The script mentions that the birth of a child has made the speaker nervous about his financial standing, highlighting the increased financial responsibility that comes with parenthood and the need to reassess one's financial situation.

💡Guardrail

In the video, 'guardrail' is used metaphorically to describe the function of a budget. It implies that a budget serves as a preventive measure to keep one's financial decisions on track, similar to how a guardrail on a road prevents vehicles from going off course. The speaker uses this term to convey that a budget is not restrictive but protective, helping to maintain financial health.

💡Groceries

Groceries in this context refer to the food and household items purchased regularly. The speaker advises to be realistic when budgeting for groceries, acknowledging that people often underestimate their spending in this category. It's used as an example of a common expense where setting a budget can help control spending and prioritize financial goals.

💡Entertainment

Entertainment in the script refers to discretionary spending on activities or items meant for leisure and enjoyment. The speaker suggests setting a specific budget for entertainment, such as $50, to demonstrate how a budget can help in making conscious financial choices that align with long-term family goals rather than immediate desires.

💡Debt

Debt is an obligation to pay a sum of money that is owed. In the video, the speaker mentions getting out of debt as one of the reasons for creating a budget. It underscores the importance of financial planning to avoid or reduce debt, which can be a significant burden on a family's finances, especially with the added responsibilities of raising a child.

💡Every Dollar App

The 'Every Dollar App' mentioned in the script is a budgeting tool that allows users to track their income and expenses. The speaker recommends this app as a practical way to implement and monitor a budget, suggesting that it can be set up quickly and used on a mobile phone for easy access and management of financial plans.

💡Goal

A goal in the context of the video refers to a financial or life objective that one aims to achieve. The speaker emphasizes that the budget should be tied to a 'why' or a goal, such as creating a better life for the new baby. This goal provides the motivation to stick to the budget and make financial sacrifices in the short term for long-term benefits.

💡Permission to Spend

This concept is introduced by the speaker to explain that a budget can actually provide a sense of permission to spend within certain limits. It means that once a budget category is set, like for clothes, spending within that limit can be done without guilt, as it is part of the planned financial strategy. This helps in maintaining a positive relationship with money management.

💡Infinite Money

The phrase 'infinite money' is used in the script to illustrate the reality that everyone has limited financial resources. It underscores the necessity of budgeting, as no one has endless funds to spend without constraints. The speaker uses this to justify the need for a budget as a tool to manage finite resources wisely.

💡Family Tree

In the video, 'family tree' is used metaphorically to represent the lineage and the legacy one leaves for future generations. The speaker mentions changing the family tree as a noble goal, implying that financial decisions and budgeting can have a lasting impact on the well-being of the family for generations to come.

Highlights

Sam starts the conversation discussing the importance of budgeting after having a baby.

A budget is described as a guardrail, not a straitjacket, to prevent financial missteps.

The first step in budgeting is to agree on spending limits for categories like groceries and entertainment.

It's suggested to initially overestimate grocery spending to accurately track actual costs.

The reason for limiting spending should be clear and agreed upon by both partners.

The goal of budgeting is to achieve a better life for the family and the new baby.

Budgeting helps to prioritize spending and avoid unnecessary purchases.

EveryDollar app is recommended for tracking and managing the budget.

Budgeting is about admitting that everyone has limits on their spending.

A budget provides permission to spend within agreed-upon limits without guilt.

The importance of being on the same page with your spouse regarding financial goals is emphasized.

Having a clear 'why' for budgeting, such as providing for a child, can motivate adherence to the plan.

The conversation concludes with encouragement for the listener's commitment to budgeting.