Debt Free / Savings Challenge: Budgeting & Cash Flow

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We’ve recently added another great budget tutorial, which you might want to check out here – How To Create and Stick To A Budget.

Welcome back to the Debt Free Challenge!  Hopefully you have tackled the assignment from week 1 and are back for more.  If you are just getting caught up or have not yet finished the first steps, no worries.  You can always read the prior week’s posts and get caught up.  Remember – this is all “work at your own pace.”

Up next is that dreaded “B” word — BUDGET!  GROAN!  I have always had a budget.  Well, I guess you can call it a piece of paper with the bills I needed pay — but not really a budget.  I couldn’t force myself to create one because it made me sick to my stomach to see it on paper — when our bills were paid we had NOTHING left for groceries – or to even be able to eat out.   As my husband I worked our way out of debt, we slowly took off debtors names from the “pay to” list and added in fun things like dine out, vacation, movies, and even SAVINGS.  When you have a budget, you are taking charge of telling your money where it needs to go rather than it telling you where it wants to go.


This week’s assignment is going to be preparing your Budget & Cash Flow Forms.  Don’t worry if you are in the red at the end, we will work through that together.   We’ll start first with how to prepare your cash flow form as you must see where your money currently “flows” before you can see your budget.


You will want to head on over and download a cash flow form.  Even if you find yourself out of debt and are looking to increase your savings, you should complete this form.  No matter your financial situation, it is good to always see where your money goes every month.

I am sure this is something that is new to many of you.  For this reason, I’ll walk through the steps on how to complete it.   Just make sure you have your checkbook, debt snowball form and copies of your bills – for the up to the  past five pay periods – in order for you to get a true picture of your cash in/out flow.   I recommend completing the past four pay periods, since we will use some calculations to reach monthly totals and it can be simpler to do a calculation using this number of pay periods.

Net Income:  Fill in your spouse’s and/or your income for each of the last five pay periods in each space listed.  You will want to record your take home pay, i.e. the actual amount of your paycheck.

Expenses:  This section is pretty self explanatory.  Fill in each space, for each pay period, with the amount you spent on each item.  If you currently do not have that one (i.e. property taxes), just leave it blank.

In addition, if you pay for items that are not listed,  that will go into Miscellaneous Spending.  However, it is important that you keep a list of the items and amounts that reach the total of this category, as we will revisit this category later on.

Totals:  Total the Icome and Expenses and determine your overage/shortage in the space provided.   In addition, total each row across as we will use these for the completion of the next form – The Budget.


Now that you have completed your cash flow form, you can prepare your budget (download the form here).  Everyone needs a budget – no matter if you are debt free or not.  Budgets just help you keep track of your money and make sure that you direct it to the right sources every month.  Again, I’ll walk you through the basic steps on how to complete this line-by-line so you are making certain that you complete it correctly.

Income Sources:   Review your cash flow form INCOME section.  Since this form is based upon your monthly income, you will have to possibly complete some calculations to reach that figure.  Here are some calculations to help you:

  • Paid Bi-Weekly (i.e. every other Friday):  Take the first 4 income totals and subtotal them.  Divide them by 2 and you will read your average monthly income.
  • Paid Monthly: Take the total of all 4 or 5 pay period and divide by 4 or 5 (whichever you totaled) to reach your monthly income.  (If the amount listed in each pay period is exactly the same, you can just use the monthly income you see).
  • Paid Weekly:  Take the total of the first 4 income periods and that will give you an average monthly income.
  • Hourly or Commission Based (i.e. fluctuating income):  If your income fluctuates greatly from month to month, you will have to revisit your cash flow and budget forms more frequently since your income and expenses can vary from week to week.

Expenses:  Total all of the lines from the cash flow associated with your each expense.  This helps you see the total of your expenses by category.

Subtotal both the income and expenses and you will see your excess/shortage.   In addition, if you happen to be using the Excel form, when you fill in the totals, you will see a chart is created for you so you can see the percentage of your income you are spending on each expense category.


Yes, tears are common at this point.  When I saw our forms I did cry.  I could not believe that we were in such horrible shape financially.  However, the tears were quickly wiped away and my husband and I tackled the forms and started to rework the numbers and I started to feel better.  I actually started to feel like I could do it.  It would be tough, but nothing in life worth having is ever easy!

What we had to do was just really look at where we were spending our money.  The first thing that had to go was dining out.  Did we need every week?  No – we knew that getting out of debt was far more important than dinner out.   Eliminating that expense immediately freed up more money which we were able to apply towards other mandatory expenses.

Just take a long, hard look at where you are spending your money.  One way to help really better analyze your expense is to sub-divide them onto another sheet of paper.  Make two lists:  Mandatory and Discretionary.  Go through each item and indicate if it is a mandatory expense or discretionary.

Take a look at your mandatory expenses – like cable.  If you get a high end package, you probably should consider scaling back to basic cable – until such time as you eliminate debt and can really afford it.   One thing that people don’t think about is your 401(k) plan.  Yes, saving for retirement is very important, but, if you are in still in debt when you get there, you will be no further ahead.  It is hard to do, but even Dave Ramsey will attest to the fact that you should temporarily suspend all contributions into retirement funds, until such time as you are out of debt.

Then, look at your discretionary spending.  Are you paying $50 a month for a yoga class that you go to only now and again?  What about your subscription to that magazine that sets you back $100 a year?  These are luxuries.  They will have to go.  If you have debt, you can’t afford anything but what it takes to keep a roof over your head, the lights on and food in your family’s stomachs (so to speak).  Trim that budget down to bare bones and you might be surprised to find that extra $100 – $300 or so hiding that you can now start to use towards your debt elimination (or even to help keep the lights on).

Go back in and create a new Cash Flow form once you shave some expenses and take another look.  Then, prepare your revised budget.  If it still doesn’t look like it should, do it again.  If you have already scaled back on everything and it isn’t balancing out, make some calls to your debtors.  Ask for reduced interest rates or how to reduce your payments.  You can also suggest to them a different monthly payment other than the one they are asking you for.  You never know what they will accept if you don’t make that phone call.

You are going to have to make tough choices.  As I said, one that we did was dining out. We ate out only about 20 – 26 times for one full year (unless someone else took us out to eat).  Was it hard – Darn Skippy it was!!  Was it worth it?  More than you can imagine.

Give yourself all week to complete this step.  Next week we are going to talk about how to build an emergency fund and will introduce the Envelope Method.  Oh – and you might want to eat out tonight before you do this – as it might be your last “hurrah” before the hammer falls on your dining out excursions.


(I am not a financial advisor and the information listed within these Debt Challenge posts is not to be construed a financial advice.   This is knowledge we gained through our own personal experiences and information as outlined in Dave Ramsey’s Financial Makeover — and is being shared as such.  Participants are not required to follow any steps listed if they do not wish to do so. Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)