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11 Best Personal Finance Books to Help You Win with Money!

best personal finance books

Best Personal Finance Books

Are you wondering about what are the best personal finance books? You have come to the right place to find out! Learn about 11 of the best personal finance books in the genre.

I have heard that most Americans don’t read a nonfiction book once they graduate from high school or college. That seems hard for me to believe (especially as an English major and someone who loves to read), but if it’s true, it also makes me really sad.

There is so much amazing information that you can learn from books—in so many different areas of life. The knowledge you gain from books really can help you to be successful in life.

 

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11 Personal Finance Books to Teach You to Be Successful with Your Money

As one of my favorite financial experts, Dave Ramsey, says, leaders are readers. He also often mentions a statistic that the average millionaire reads a nonfiction book a month. So reading is pretty important, and if you want to win with your money, reading about personal finance is pretty important!

I work full-time as a professional editor, so I literally read all day long, and I’ve been a bookworm for as long as I can remember.

One time, when I had a long commute to work, I even started reading all of the personal finance books that our library had, from A to Z. I made it more than halfway through the alphabet before something else eventually caught my interest and I started reading other things again, but it was a lot of fun and a great experience to read all of the differing perspective on money.

Below I list some of my favorite personal finance books, or those that made me consider or even reevaluate my thinking on the subject of personal finance and money.

 

 Quick tip: Click the blue titles of the books in the list of best personal finance books below to learn more about each one.

 

The Total Money Makeover by Dave Ramsey. Possibly my favorite personal finance book, this is the best one I have read as far as laying out a simple plan that you can follow to save, get out of debt, and invest to build wealth. Two thumbs way up!

Smart Money, Smart Kids by Dave Ramsey and daughter Rachel Cruze. In this great book for parents, Dave and his daughter Rachel teach parents how they can teach their children about working, spending, saving, giving, avoiding debt, and being content. This book teaches parents how to help their children make good financial decisions and gain character attributes that will help them not only win with money but win at life.

Your Money or Your Life (2018 edition) by Vicki Robin and Joe Dominguez. This book takes a different approach from most of the personal finance books out there. It emphasizes discovering your values and then aligning your life to follow those values. It also shares the intriguing idea of looking at everything you buy in terms of number of hours worked (hours of life energy spent), and suggests considering whether the things you buy or spend your money on are really worth the number of hours of life energy spent to pay for them. The authors suggest the idea of potentially working less, and living more.

The Automatic Millionaire by David Bach. This book explains the benefits of automating your finances so that you can set up systems to help you win with your money. By automating your finances you can save and invest in order to build wealth and retire in style. Set it so you won’t sweat it!

Smart Couples Finish Rich by David Bach. This book, like Smart Women Finish Rich (also by David Bach), talks about the importance of reducing unnecessary spending in order to use your money to reach the goals that matter most in your life. In Smart Couples Finish Rich Bach focuses on how couples can work together to identify and reach their financial goals such as saving for retirement and building an emergency fund. He also specifically teaches couples to save money toward reaching their dreams, whatever those may be.

Rich Dad, Poor Dad by Robert Kiyosaki. Though I don’t believe in all of the principles that the author follows (such as being highly leveraged—using a lot of debt—to build wealth), I definitely do believe in his entrepreneurial spirit and the importance he places on gaining financial literacy.

Love Your Life, Not Theirs by Rachel Cruze. This book emphasizes that if we always focus on what we don’t have and on comparing ourselves to others, then we will always be unhappy and broke. She teaches the importance of getting out of debt in order to avoid the worry and stress of living paycheck to paycheck and teaches sound financial principles such as living on a budget and saving for the future that bring joy and build a solid financial foundation.

The Millionaire Next Door by Thomas Stanley and William D. Danko. This eye-opening book debunks the idea that millionaires all live in huge homes and drive brand-new luxury cars. The reality, in fact, is that most millionaires live in ordinary neighborhoods and drive average cars. The findings of Stanley’s study are fascinating, but beware that he uses a lot of statistics. Even still, it really is a great read. Highly recommend!

The Richest Man in Babylon by George Samuel Clason.  This classic money book teaches the importance of saving at least 10 percent of your income and of differentiating between wants and needs. It also teaches that it’s important to go after the things you want to achieve by working hard and improving your skills so that you will be able to earn the money needed to reach your goals. It teaches to invest wisely and not get involved in money-making investments that seem too good to be true.

Living Well Spending Less by Ruth Soukup. In her first book author Ruth Soukup tells about her own journey to learn to live within her means and combat the desire to always buy more. With practical advice and humor, she teaches 12 principles that can help you get control of your money and your life—learning to spend less, declutter, get organized, and love the life you live.

Think and Grow Rich by Napolean Hill. Another iconic book in the personal finance genre, Hill’s classic work talks about the importance of both desiring what you want and then making a plan to go after it. The author recommends setting a specific goal for how much money you want to attain and a specific date by which you want to attain it, as well as a plan for how you are going to do it. He then recommends reminding yourself daily of that plan. He also emphasizes the need to know what you want in order to make decisions quickly and not procrastinate. Though there are definitely some interesting ideas the author shares, I definitely agree with the main idea of directing your thoughts toward attaining the things that you want to accomplish in life and then following through to make those desires reality.

More Books for Financial Success

In addition to the books listed above, here are some of my other favorite books that will help lead to your success with money and in other areas of your life.

 

Start with Why, by Simon Sinek.  Starting with why is so important. And the reason is pretty simple: in order to change old habits and start new, better habits, we’ve got to have a very strong motivation— and that motivation, for many people, is their why.  This is (and all of his books are) an excellent read.

The 7 Habits of Highly Effective People, by Stephen R. Covey. This is another powerful book, loved by millions, that will help you to succeed with your money and succeed in many different areas of your life.

Final Thoughts on the Best Personal Finance Books

If you will continually read throughout your life, you will be able to continually improve your situation in various areas of your life.

You can (and should!) regularly read books on personal finance, of course, to stay money savvy and learn new ways to be successful at the money game. But I would also recommend reading books on strengthening your relationship with your spouse, raising kids, increasing your faith, improving your health, leading, managing business, and more.

 

What do you think are the best personal finance books? Which personal finance books have helped you the most to be successful managing your money? Leave a comment below and let me know! I would love to hear your thoughts!

 

Check out these related articles:

9 Must-Know Steps to Help You Finally Start Saving Money!
9 Top Tips to Reach Large Financial Goals
7 Simple Steps to Automate Your Finances
17 Must-Know Tips to Rock Your First Budget

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

best personal finance books

21 Fun and Budget Friendly Gifts for Mother’s Day!

cheap Mother's Day gifts and budget friendly Mother's Day gift ideas

 

 

Budget Friendly Mother’s Day Gift Ideas for Mom

In this article I am going to share some of the best budget friendly Mother’s Day gift ideas for mom! (These are perfect cheap Mother’s Day gift ideas! (Cheap in price but not in quality. :))

You know how special your mom or your wife is to you. She’s priceless. 🙂 And I know that she deserves the best. But fortunately, you can show your appreciation to the women in your life without breaking the bank. There are lots of budget friendly gifts for moms that can show the special women in your life how much you care!

In the list below you will find some of the best inexpensive Mother’s Day gift ideas for moms. Find Mother’s Day gifts your mom will love!

Pro tip: Do you want your gift shipped fast and free? Have you tried Amazon Prime yet? Get free 2-day shipping when you sign up for a free 30-day trial of Amazon Prime, and enjoy the many benefits of this awesome service!

 

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21 Top Budget Gift Ideas for Mother’s Day

Here are some of my favorite Mother’s Day gift ideas for moms! If you are looking for budget-friendly Mother’s Day gifts (cheap Mother’s Day gifts), then check out these awesome gifts at a great price!

No matter the occasion, if you are looking for a thoughtful, meaningful, and budget friendly gift for mom, then this list has some perfect items for you!

Click the images and links below for more information about each gift idea!

Watches

Even in this day when virtually everyone has a smartphone, many women still love a classy timepiece (my own mom included! :)).

This watch here is like the one I had for years and years, and I still think it is a wonderful piece of jewelry, elegant and very functional.

 

You can find even more ideas for women’s watches here.

 

 Jewelry

In addition to watches, necklaces are another great way to tell Mom that you love her. Two of my favorite budget friendly necklaces that are perfect Mother’s Day or birthday (or Christmas!) gifts are these two.

 

And here is the other one.

 

And here is one more customized necklace that I love. Any mama would be proud to wear this beautiful necklace.

Genteele Sherpa Plush Throw Blankets


Mom will love this super soft, reversible, and warm throw blanket. Available in a wide variety of colors!

 

A Prayer for Mom Wall Art

This beautiful (and still budget friendly!) wall art will show your favorite mom how much you appreciate and love her.

This classy, versatile version is great for hanging on the wall or setting on your end table.

 

Funny Socks


Your favorite mom will get a get out of these funny (but also warm and comfy!) socks! Great stocking stuffer, too!

 

Best Books for Moms

Books are another great option for Mother’s Day gift ideas for mom. Give mom the gift of remembering to take a few minutes for mindfulness each day.

 

This is a wonderful gift idea for moms with teens and tweens. I love the idea of sharing a journal like this with my daughters when they are older.

You can also find tons of great ideas for books for mom here.

 

 

Infusion Water Bottle


This is a high-quality, 100% leak-proof infusion water bottle. Makes a great stocking stuffer!

Flickering Flameless Candles

These beautiful flameless candles will set the perfect mood, whether you want a relaxing evening or a romantic one.

 

 Aromatherapy Candles


These 4 aromatherapy candles are a perfect budget friendly Mother’s Day gift for mom to help her relax and unwind at the end of a long day. Each candle has a wonderful and distinctive fragrance (click to learn what they are!).

 

Bath Bombs Gift Set


These awesome bath bombs are another great way to set the perfect mood. Simply throw the bath bombs in warm water to create a wonderfully luxurious atmosphere.

 

Bronze Family Tree with 6 Hanging Picture Frames


This beautiful bronze set of 6 hanging picture frames is perfect for displaying your cherished family photos!

 

Fun and Funny Mugs for Mom


There are so many fun mugs and tumblers for Mom! This stainless steel tumbler is one that I love.


If you have an angel mother like I do, then you’ll love this beautiful mug.


This is another fun one. (You can also get a set with matching mug and tumbler for mom and dad. :))


This is another one of my personal favorites Show mom you appreciate the many, many important roles she plays.

You can check out more fun and funny mugs for mom here.

 

T-Shirts

Another fun Mother’s Day gift idea for mom is T-shirts. With so many options for awesome mom’s T-shirts to choose from, you are sure to find one that she will loves!

 

 

Car and Trunk Organizer

 

I’m a practical mom, and I love practical gifts that make life easier. 🙂 This car organizer is a great way to get back more storage space and cut down on clutter in your trunk or SUV! I love this simple trunk organizer!

 

Tools

Tools are another awesome and practical Mother’s Day (or birthday!) gift idea for mom. When my sisters and I were in college and high school my dad bought us tools sets, and I still have it today!

So whether mom is super handy already or wants to learn to be, you can find great deals on  tools to make sure she can get done what she needs to.

This is a great, high quality, durable tool set with hammer, precision screwdrivers, tape measure, pliers, wrenches, sockets, ratchets, and more!

In addition to the tool sets above, you can find tons of other great tool sets here.

 

Final Thoughts on Cheap Mother’s Day Gift Ideas

These budget friendly Mother’s Day gift ideas for mom (ideas for cheap Mother’s Day gifts) will give you lots of great gift options for your favorite moms or ladies. These gifts are perfect for Mother’s Day, birthdays, or to give a simple thank you or I love you for any occasion!

 

What are your favorite Mother’s Day gifts for mom? What Mother’s Day gifts for mom do you recommend? I would love to hear your ideas! Leave a comment below and let me know!

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

9 Simple Ways to Transform Your Money Mindset

money mindset

Money Mindset

Your money mindset is your beliefs and attitudes about money. Unfortunately, many people have a negative money mindset. Many believe they have to have debt to survive in today’s society. Or they believe that they will always live paycheck to paycheck and will never be able to get ahead financially.They feel that l will never be wealthy, or that it’s not really even possible to be wealthy anymore. 

But no matter your current beliefs about and feelings toward money, you can create a healthy, positive money mindset that will move you toward financial security and, ultimately, financial freedom.

 

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9 Critical Tips to Transform Your Money Mindset

A major reason that many people struggle with their finances for years and years—and sometimes for their whole life—is because of their money mindset. Many people learn their money mindset from their family life as they grow up. Sometimes they carry on the same beliefs as their parents. And sometimes, because of financial difficulties or problems in their young lives, they take an opposite view of finances than their parents.

Often we have money mindsets that limit our potential. In other words, our beliefs about money often limit what we are able to accomplish with our finances.  

In this article I am going to discuss 9 crucial things you must do to transform your money mindset. You can shift from a scarcity mindset to an abundance mindset—from a belief system of just wanting to get by to a mindset of building wealth and being able to thrive—by following these simple principles.

 

1. Let go of your limiting or harmful beliefs from the past as you work toward creating a healthy money mindset.

Maybe you believe (or have believed) that you will always live paycheck to paycheck, and that that is normal and OK. Maybe you have even believed that you will always be broke. Maybe you have believed that you will always be in debt. Maybe you have believed that debt is a good and necessary tool to get by in today’s society.

Maybe you believe that if you don’t save or invest or prepare financially for the future that some fairy godmother will magically appear and take care of you in your golden years. (Unfortunately, what will happen if you don’t prepare is that you will end up being broke and scrimping by for potentially decades of your later life.)

But none of those things have to be your reality—unless you make them your reality by the choices you make.

You can stop living paycheck to paycheck starting today.

You can get out of debt and (finally!) start to save.

You can start to invest and build your own awesome financial future (no fairy godmother required!). 🙂

Millions of people have already done and are already doing it the good old-fashioned way, and so can you!

 

 

 

2. Focus on the future as you work to change your money mindset.

Once you let go of the beliefs you have had and step away from your past, start planning for an amazing financial future!

One of the first steps to help you create the financial future of your dreams is to start to budget. Because like it or not, you probably have limited resources, so you need to tell those dollars how to best work for you.

When you create your budget, make it a zero-based budget. In other words, allocate your monthly income down to nothing on paper. You may think that this seems odd; that it would be better to leave a little money as a buffer. And that is great, if you designate that money to be put into a particular savings account or something, like your emergency fund. But don’t just leave the money unaccounted for. The reason? It’s almost certain to get spent.

No budget? No problem! Sign up below to receive a free spending tracker and starter budget forms!

 

 

3. Focus on your why to help you have the motivation to change your money mindset.

One of the best things that you can do to change your money mindset and your current financial situation is to identify and then focus on your financial why.

Think carefully about the answers to these questions (you may want to write them down or talk about them with your spouse): Why do you want your financial situation to change? Why do you feel you need to pay off debt or start saving more money or investing for retirement? Why would you like to earn more money? What are your ultimate financial goals and dreams?

Your why is of utmost importance because it will give you the motivation to set crucial financial goals that will help you change not only your money mindset (especially as you are able to make progress toward achieving them) but also the trajectory of your life. With simple and realistic but amazing and far-reaching financial goals, you will be able to accomplish incredible things with your money that most people never will. That is sad, but it’s true.

Many people go through life half awake, never having the ambition or the discipline or dedication to really accomplish awesome things. But you are not that person! Or if you were, you are not anymore! 🙂

You are going to accomplish incredible things in your life by setting and steadily working toward simple but incredible financial goals like building up savings for emergencies and saving for large purchases and expenses, getting out of debt (including paying off that mortgage!), investing for retirement. helping to pay for your children’s college educations so that they will not be saddled with debt, and building wealth so that you can achieve ultimate financial freedom.

Check out this related article on how to save more money by identifying your financial why.

 

4. Realize that you can get out of debt and build wealth (and it’s not that hard to do; promise!).

Another one of the most important things you can do to change your money mindset and to build wealth is to change your views on debt. Rather than viewing debt as a tool or thinking that there is good debt and bad debt, consider debt as the thief of your financial freedom and your future wealth.

One of the healthiest things you can do for your money is to first get out of debt and then stay out of debt. That is because when you get out of debt—as one of my favorite personal finance gurus, Dave Ramsey, says—you free up your biggest wealth-building tool: your income.

By paying off all of your debt—including paying off your mortgage (as soon as possible! :))—and then staying out of debt you will have all of your income to use to meet your needs and build your wealth, instead of the bank’s. And ultimately, you will be able to achieve financial freedom.

Learn how to get and stay out of debt.

Start by making one small goal that you can work toward. For example, if you have a credit card with a $200 balance or an installment loan with a $350 balance, work toward paying that off. Start by throwing just $20 extra dollars a month at it, if that is all that you can do right now. But then watch that balance go down. Celebrate each small success that changes your financial trajectory. This will help you realize that you are in control of your financial life and that you can change your financial situation.

Once you are headed in the right direction, see what you can do to kick things up a notch. There are so many things that you can do to cut your expenses in order to work toward getting out of debt and building your emergency fund! And you can also find ways to increase your income, to work on the other side of that equation.

It will take some time and dedicated effort, but once you have gotten out of debt and created your full emergency fund, you will be able to easily find money in your income to be able to invest for an incredible future. Realize and accept (and embrace!) the fact that you really can be wealthy! In fact, you can set yourself up to become a millionaire with as little as $200 a month! This is not just a pipe dream; building wealth is a very realistic goal, given enough time and a little bit of discipline and dedication.

 

Get the Mastering Your Money Mindset Workbook!

Mastering Your Money MindsetIs your money mindset holding you back?

Do you want help to develop a healthy money mindset that will transform the way you think about money and help you develop a mindset of abundance and building wealth? Then get the Mastering Your Money Mindset workbook today!

 

5. Be content with what you have to foster a healthy money mindset.

Another mindset shift that will really help you to build wealth is to learn to be content with what you have. This will help ensure that you have a mindset of abundance rather than a mindset of scarcity.

I truly believe that one of the main secrets to building wealth and being financially successful is to learn how to be content with what you already have. Of course there are other important factors, but if you can’t be content with what you have and you always feel a driving need for more gadgets, more toys, more stuff—and better stuff—then you’re going to struggle at winning financially.

And simple math is the culprit. As much as virtually all of us would like to have all the money in the world to both buy the things we want and do the things we really should do for our financial stability and success, the truth is that most of us simply don’t have the money for both. And so we have to choose.

Learn 9 powerful principles that will help you to be more content (so you can save more money)!

 

6. Differentiate honestly between needs versus wants.

As you work to change your money mindset, begin to differentiate honestly between needs versus wants, and then make adjustments to your budget accordingly. Sometimes we do a pretty good job of justifying wants by calling them needs. But to truly differentiate needs versus wants, remember this: you need housing (unless you can live under a palm tree or something), but you don’t actually need a fancy or new or even nice home.

Similarly, you need food, but you don’t need restaurant food or gourmet food or to always eat name-brand food. You need transportation, but you may be able to get around with one car for a while (or even possibly no car, if you can use bikes or your feet or public transportation). And you definitely don’t need a brand-new or ultra-safe or super fancy car.

The better you can differentiate needs versus wants and base your budget on your needs first and then the wants that you can truly afford while still saving and investing adequately to meet long-term, crucial financial goals, the better off financially you will be later in life.

As you create your monthly spending plan or budget, allocate money for your needs first. That means designate money first for reasonable food, clothing, shelter, transportation, utilities, and other true necessities.

Then designate money to build up an adequate (three- to six-month; six months is ideal) emergency fund, to create sinking funds to cover future larger expenses and larger purchases (such as appliances and furniture and vehicles and so on), and to save adequately for retirement (save at least 10 but preferably 15 percent of your income for retirement as soon as you are financially able to).

Learn more about differentiating between needs and wants here.

 

 

7. Cultivate gratitude in your life as you work to change your money mindset.

Another one of the most important things you can do to change your money mindset and to help ensure you have lasting peace and joy in your life is to develop an attitude of gratitude.

If you are reading this blog article, you probably have power, running water, shelter, and all the necessities of life. You probably have a lot of what you want as well, like a nice home or apartment that you are living in, a nice car or two, nice clothes, high-speed internet, smartphones, and so on. In fact, you probably have everything that you need, and much of what you want.

Collectively, I would wager that the people on the earth have never had so much wealth as we have now. And when we remember that, when we remember how truly blessed we already are, it makes it easier to say no to a daily latte or eating lunch out every day or buying a nicer car or buying one more toy for your kids’ already overstuffed playroom. It also makes it easier to then work toward the financial goals that we know we should be working toward, like saving for an emergency fund and saving for retirement and for larger purchases to help us avoid debt.

For more on this important topic, read this article on the power of gratitude.

 

8. Understand that money is not evil.

Depending on your parents’ view of money or the views of other influencers around you, you may have grown up being taught (either overtly or covertly) that money is evil. If you are a Christian, you may even have been taught that money is the root of all evil.

But that is simply not true. The Bible says that the love of money is the root of all evil. In other words, putting money above things that should be more important like family and love of humankind is wrong, but money in and of itself is not bad.

You can do amazing things with money! If you don’t have money—enough money to provide for your own needs and then some beyond that—it is very difficult to give money away to help those less fortunate. By building wealth, you can have ample resources to give away to bless the lives of other people in need.

It is not money that is evil; it is what we do with our money that determines whether money is good or bad.

 

9. Set big financial goals.

If you do not set financial goals, your financial life will never go beyond being mediocre. If you want an awesome financial future, you need to set and then diligently work toward big financial goals.

That doesn’t mean the goals have to be overly difficult. You can stop overspending and stop living paycheck to paycheck now.

You can work steadily and incrementally on getting out of debt.

And then you can work on saving for your future. You really can retire comfortably if you will invest just $200 a month. And investing just $200 a month really is not too difficult given the income of most households if you will just have a little discipline.

On the flip side, if you want to have an even more comfortable life and retirement in order to travel and give more money away, for example, then set bigger financial goals! Invest more money every month, and watch your wealth grow over time. Pay off your mortgage, and invest that money in sound investments, and you will be amazed at what that alone can do for your financial future. When you are completely out of debt, you are better able to build real wealth.

Continue to invest at least 15 percent of your income above investing the money that was previously going toward your mortgage, and your money will grow even faster. You might decide to retire early, or you can pursue other goals that come with financial freedom.

 

Final Thoughts on Money Mindset

As you follow these steps to change your money mindset, you will be able to move yourself and your family steadily toward financial freedom. First you will be able to achieve freedom from overspending, then freedom from living paycheck to paycheck, then freedom from the stress of having no financial cushion (savings), then freedom from being in debt, and then ultimate financial freedom—from having to work to provide an income for your living expenses.

With ultimate financial freedom, you will get to the point where you can choose when and how you want to work, or if you want to work at all. Your time will be your own to accomplish the amazing things that you want and maybe even were meant to do in your life.

So transform your money mindset and go after your amazing financial goals!

 

What do you think are the most important steps for transforming your money mindset? Where are you on the journey to financial freedom, and how has your money mindset helped you get there (or prevented you from getting farther)? Let me know your thoughts in the comments below! I would love to hear your best ideas for how to change your money mindset!

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

7 Simple Steps for How to Make a Budget: Learn the Simple Steps That Work!

how to make a budget

How to Make a Budget

In this article I am going to discuss how to make a budget. Learn the simple steps that every person and family can follow to make a budget that actually works! Learn the 7 steps that allowed us to pay off over $260,000 in debt in less than 10 years (including our mortgage)!

Budgeting is so important to your financial success because when you get control of your spending by creating and then following a monthly budget, you gain control of what one financial expert calls your largest wealth-building tool: your income. And when you control your income, you can reach your awesome financial goals and achieve your dreams!

If you want even more information on how to make a budget, also read this complete Beginner’s Guide to Budgeting!

 

Tip: Pin the image above so that you can easily refer to this article on how to make a budget later!

 

 

How to Make a Budget (That Actually Works!) in 7 Simple Steps!

Below I am going to share 7 simple steps for how to make a budget that will actually work to help you save money and reach your short- and long-term financial goals!

 

1. Track what you spend as you work to make your budget.

Track what you spend for a couple of weeks or a month to really get a good feel for where your money has been going. This doesn’t have to be perfect; just do your best. Use a debit card to make purchases and pay bills as much as possible during this time so that you can go to your bank or credit union website to see what you have spent. Sign up below (after step 2) to receive a free spending tracker form!

 

2. Start with a simple, hard-copy budget.

When you very first start budgeting, I recommend using a paper budget. This gives you a simple way to create your first budget by helping you to get a rough idea of what you would like to spend where. Sign up below for a simple budget that will help you get started!

 

Once you get the hang of budgeting and have done it for a few months, go ahead and switch to a digital budgeting system if you prefer. 

 

Check out these related articles:

Complete Beginner’s Guide to Budgeting
17 Must-Know Tips to Rock Your First Budget!
Budgeting fail? Try This Simple Alternative to Budgeting
13 Surefire Steps to Help You Stick to Your Budget
9 Must-Know Tips to Help You Finally Start Saving! 

3. List all income sources as you work to make your budget.

If you have a job where you receive regular paychecks, this shouldn’t take too long. Simply add up all income (for you and your spouse), and write that number at the top of the page. Don’t forget to include freelance income and any money earned from second jobs, overtime, or side hustles.

Here is a list of possible income sources:

  • Wife’s job
  • Husband’s job
  • Wife’s second job or side hustle
  • Husband’s second job or side hustle
  • Child or spousal support
  • Rental income
  • Disability income

 

4. List all of your expenses as you make your budget.

Then begin to list your expenses. Don’t forget to include tithing and charitable giving in this category.

Do a zero-based budget so that every dollar you have goes to a designated place. If you don’t, it’s almost certain that the unallocated money will get blown in one area or another. Be intentional with all of your money so that your money really works for you.

First list your regular, fixed expenses. Gather your regular bills, such as mortgage or rent payment, car payment, public transportation pass, utilities, health insurance premium (if not deducted automatically by your employer), cell phone bill, internet bill, car insurance bill, and so on.

Here is an easy list for reference of common fixed expenses you can use when creating your budget:

  • Tithing
  • Charitable giving
  • Rent or mortgage
  • Renters insurance
  • Homeowners insurance and property taxes (if not paid with the mortgage)
  • Car payment
  • Automobile insurance
  • Life insurance
  • Health insurance
  • Dental insurance
  • Internet
  • Cell phones
  • Cable/satellite TV
  • Home phone
  • Gym or rec center membership
  • Retirement savings

Then list your variable expenses. After you add up all of your fixed expenses, figure out your variable monthly expenses such as groceries, gasoline, household expenses, clothing, entertainment and eating out, pet food and supplies, and toiletries.

And here is an easy list for reference of common variable expenses you can use when creating your budget:

  • Groceries
  • Household items (cleaners, towels, and related items)
  • Eating out
  • Gasoline/fuel
  • Public transportation
  • Clothing
  • Utilities (electricity, natural gas, water, sewer, garbage)
  • Toiletries, makeup, and related items
  • Child care
  • Pet food and supplies
  • House maintenance
  • Home furnishings and appliances
  • Car maintenance
  • Education/tuition
  • Kids’ school or sport/music expenses
  • Entertainment
  • Electronics/toys
  • Recreation/sports and vacations
  • Hair care (stylist/barber)
  • Christmas and gift giving

 

5. Decide how much money you will budget toward savings.

 Before you budget for other expenses, budget in your savings. This is known as paying yourself first. If you budget your savings first, you will know it will be taken care of and you can trim other budget categories if needed to make saving (even if it is a small amount at first) a reality. If you wait to budget your savings last, you might feel like you have nothing left over to save.

 

Start Small If You Need to When You First Make Your Budget

It’s likely when you first start budgeting that you won’t have a lot of money left over to put toward savings. It’s OK to start small, but as quickly as you can, start increasing the amount that you save toward specific categories. And no matter how little your income, start saving something right from the beginning if you possibly can, to get yourself into the habit of saving.

As long as you make a little more than your fixed expenses each month, then determine a realistic amount to save, and save that portion of your income before you do anything else—known as “paying yourself first.” If you plan to just “save what’s left over,” the chances that you’ll have anything left to save are slim.

If you crunch the numbers and you really just don’t have anything left over to put toward saving (and then paying off debt once your starter emergency fund is funded—see the next section) after paying all of your bills, then you should look at ways to earn additional income.

 

Fund Your Starter Emergency Fund (EF) First as You Make Your Budget

The first thing you should start saving toward when you make your budget is a starter emergency fund. This is a crucial next step because an emergency fund gets you out of the mode of relying on credit cards and it really does virtually stop emergencies from happening. It’s not that your car’s transmission never goes out or your roof never springs a leak, but those things are no longer emergencies—they are inconveniences because you have the money saved up to pay for them.

You should put all extra money above bare-bones expenses (that means minimal spending on eating out, entertainment, and so on) into your emergency fund until it is fully funded. If you have consumer debt, start with a small emergency fund of $1,000 to one month’s worth of expenses (depending on how likely you are to need the money—for example, scale upward if you have an older car or home), and pay off your consumer debt before you build your full emergency fund of three to six months of expenses. Try to build up your $1,000 starter emergency fund in a month or less by slashing expenses such as your grocery bill and entertainment spending, by selling stuff, and by earning extra money through overtime or a side hustle or second job.

Learn more about how to fund your emergency fund as quickly as possible.

After you have funded your starter emergency fund and have paid off all of your nonmortgage debt (discussed in the next step), start working toward your fully funded emergency fund and toward saving for large purchases.

 

Tired of tiny interest rates on your savings?

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 Then you should check out CIT Bank. We love our CIT Bank savings account, which offers the highest savings rate that we know of. With the CIT Bank Savings Builder, you can earn up to 1.75% on your savings account (which is really good in today’s market)!

And right now you can get up to $300 when you open a Savings Builder account! Click here to learn more and open your savings account today!

6. Start working to pay off your debts.

Once you a starter emergency fund of at least $1,000, begin working to pay off your debts.

After you start budgeting and have all of your expenses written down on paper, you will start to see areas where you can reduce your spending (see this article for more than 35 areas where you can cut your spending) in order to start paying off your debt.

Once you have a good handle on doing your monthly budget, try to set up your budget so that you can pay extra payments on your debt in order to have all of your nonmortgage debt paid off within 18 to 24 months—or faster, if you can! (You may want to find ways to increase your income or find things to sell in order to help you reach this goal.) In order to pay off your debts, use either the snowball debt payment method or the avalanche debt payment method.

Briefly, the debt snowball method is where you list all of your debts smallest to largest and you pay just minimum payments on all of your debts except for the smallest one and then throw all of the money that you can toward that smallest debt until it is paid off. Then once that first debt is paid off, you use the all of the money from your budget that you were spending on paying off that smallest debt to attack your next smallest debt. And then so on.

With the debt avalanche method, you similarly pay minimum payments on all but one debt, but the debt that you attack first is the one with the highest interest rate. You will save on interest if you use the avalanche method, but I recommend that you follow the snowball method because of the motivation that comes from paying off the smaller debts first and getting the emotional boost from those relatively quick wins. The snowball method is the method we used to pay off more than $60,000 in nonmortgage debt.

 

7. Continue tracking your spending each month, and adapt your budget as needed over time.

Don’t get frustrated and give up if your budget doesn’t seem to work at the beginning and you overspend or forget to record all of your expenses. We’re shooting for progress, not perfection. 🙂

It will probably take about three months to work out the major kinks in your budget, but then your budget will really start to work! You should create a specific budget for every month because no two months are exactly the same, but once you’ve been budgeting for a while, your budget will be mostly set and you’ll only have to make minor tweaks from month to month. However, when major events happen in life that cause big changes in your finances, be sure to adapt your budget accordingly.

 

How to Make a Budget That Will Work: Must-Know Tips to Succeed at Budgeting

Another important aspect of how to make a budget is what to do to actually succeed at budgeting, or what to do to make a budget that will work for your family. To succeed at budgeting, here are 5 important things you should do.

 

Adjust Your Budget Categories If You Overspend in an Area So That Your Budget Stays Balanced Each Month

Because you’re going to go off of a zero-based budget, if you decide you have to spend more in one area than you planned for, then you need to pull the money from another spending category. So if something comes up where you need to spend more on your gifts category, for example, because you receive a wedding invitation, then the amount in your entertainment category or fun money or clothing category or somewhere else will need to be adjusted. Your budget needs to balance out.

 

Automate Your Finances to Help You Succeed at Budgeting

To avoid getting overwhelmed, automate as much of your finances as possible. I don’t have any bills that I regularly pay with a check—we use bill pay for all of our expenses, including tithing and charitable donations. Automating our financial transactions saves time and makes life much simpler (and helps me avoid forgetting to pay my bills!).

If you want to learn more about how to automate your bill paying, saving, and investing to simplify your life and start to build wealth, I recommend The Automatic Millionaire by David Bach. It’s one of my favorite personal finance books because it gives simple, actionable steps you can follow. And check out this article for more information on automating your finances.

 

Use Cash for Budget Categories You Tend to Overspend On

Some areas that you’ll probably want to use cash for in your budget include food, entertainment, clothing, and personal fun money. You can use envelopes to keep your cash for the week or month or a wallet with different compartments. You can learn how to stop overspending here.

Budget to Save for Large Purchases and Expenses as Soon as Possible

If you do not have any debt and you have already created your fully funded emergency fund, then start to save toward other financial priorities. You can learn how to save for large purchases here.

In order to stay out of debt and build wealth, you’ve got to be able to cover your expenses without borrowing money. This means you need to have the money saved to cover these costs with cash. For financial well-being, all families should have the following savings accounts in place and be regularly funding them.

  • Create a vehicle maintenance and replacement fund as soon as possible. Shorter term, funding your vehicle savings account prevents regular car maintenance and unexpected repair costs from becoming financial emergencies. And longer term, this fund helps you save thousands of dollars in interest by paying a car payment to yourself instead of to a bank or other lender.
  • Create a house maintenance or down payment fund. If you are a homeowner (or plan to be a homeowner in the future), then this is a must. Eventually virtually everything in your home will need to be repaired or replaced. And some of those items are really expensive. Yes, homeowners insurance will take care of many things, but whenever you can, you should be your own insurance plan—you should self-insure by having savings to cover those inevitable expenses that will crop up. This will help to keep your insurance premiums as low as possible—so raise those deductibles! And there are some things that homeowners insurance simply won’t pay for (generally), such as burst water pipes, collapsed sewer lines, and damage caue by earthquakes, mold, floods, and more.
  • Create other savings funds. Here are some examples of other savings funds that we have and that I recommend you set up as soon as possible:
    • Save for vacations, Christmas, gift giving, larger household items (such as appliances and furnishings), and more. Once you have the essential items covered in your budget (food, clothing, shelter, transportation, and utilities, for example), begin saving for things like vacations, Christmas, household furnishings and appliances, and so on. The easiest way that I’ve found to do this is by having separate savings accounts for each category.Pro tip: If your bank or credit union doesn’t offer very good interest rates on savings accounts, look into CIT Bank or another online bank with high interest rates.

      One of the things that I love about my CIT Bank Savings Builder account is that you can have multiple savings accounts for your various savings goals. They also have one of the best interest rates around, with up to 1.75% interest rate on your savings. And right now, you can get up to $300 when you open a Savings Builder account.

      Learn more or open your CIT Bank Savings Builder account today!

    • Create a dream fund. When you are out of debt and have begun to save for all of the above items, begin funding your dreams. Because learning to be financially savvy isn’t just so you can pay all your bills and retire with dignity and give to the causes you support—though all of those things are extremely important. It’s also so that you can really enjoy the many things money can buy, guilt free and without debt. This might mean saving for a motorcycle, a nice car, an RV, a boat, an exotic vacation—whatever you want. If you’re young or have a lot of debt it may be years before you can fully fund or maybe even start these savings funds, but if you keep it in the back of your mind, it will help you stay on track financially.

Learn the 9 savings accounts that every family should have.

 

Budget Money to Save for Retirement and Save for Kids’ College

There’s a saying in the personal finance industry that the best time to start investing was yesterday—and the next best time is now. So as soon as you can, start investing for retirement in a 401(k) or Roth IRA (or both!), and start saving for your children’s college expenses in an educational savings account (ESA) or college 529.

Even if you start with just $100 a month, the savings begins to grow quickly, and by seeing the progress you make, you’ll be motivated to save even more. We have investment accounts with both Schwab and Vanguard. Both are inexpensive, excellent options to help you start investing for retirement and saving for college today.

Find more information about how to succeed at budgeting here.

Final Thoughts on How to Make a Budget

With these 7 simple budgeting steps, you can learn how to make a budget work for you! By identifying and tracking your expenses, listing your income and expenses, drafting your budget, including money for saving and paying off debt, and adjusting your budget if you overspend in a category so that your budget stays balanced, you will succeed at budgeting! It will take some time and consistent effort, but you can do this! And your future self will be forever grateful. 🙂

If you want to be able to have financial peace and stability and eventually reach financial freedom, you have to be able to have money left over after your spending to save and to invest. And in order to do that, you have to master a budget or spending plan. If you want to win financially, as with any area of your life, you have to make a plan and stick to it. Find information on how to stick to your budget here. And you can find the complete  Beginner’s Guide to Budgeting.

What questions do you have about how to make a budget or how to start budgeting? Have you tried to budget before and not been able to stick with it? What are your biggest budgeting challenges or hurdles? Leave a comment below and let me know!

 

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Beginner’s Guide to Budgeting

beginner's guide to budgeting how to budget

Beginners Guide to Budgeting

In this beginner’s guide to budgeting, I am going to discuss what budgeting is, the steps to create a workable budget, and how to succeed at budgeting. I’m also going to talk about common budgeting questions and answers.

Budgeting is so important to your financial success because when you get control of your spending by creating and then following a monthly budget, you gain control of what one financial expert calls your largest wealth-building tool: your income.

 

Tip: Save the image above to Pinterest so that you can easily refer to these tips on beginner’s guide to budgeting later!

 

 

How I Learned the Importance of Budgeting

Fifteen years ago, before I was interested in or knew very much at all about personal finance, I think that budgeting to me, if it meant anything at all, meant to not spend more than I had in my checking account. (And all things considered, that really is not a horrible place to start. :))

About a year after I graduated from college my husband had just started college, and we were taking an extracurricular class together that had nothing to do with personal finance overall. But as part of the class discussion that day we talked about compound interest, and that conversation changed the whole trajectory of my life.

From that time I became very interested in and then passionate about personal finance, and I read countless books and articles to learn all that I could about the topic.

I have now taught community personal finance classes (Ieading Dave Ramsey’s Personal Finance University), and my husband and I have also been able to use the knowledge we have about personal finance to pay off over $260,000 of debt in less than 10 years (including our mortgage!).

 

Why Budgeting Is Essential to Save Money

One of the most important foundational principles of personal finance is budgeting. By creating a budget, or a spending plan as it is also called, you are able to determine how you want to spend, or not spend, your money in order to accomplish the goals with money that you want to.

Personal finance in general and budgeting in particular are so important because money really touches every aspect of our lives. There is not much that we can do in this life that is not connected to or dependent upon money in some way. What we spend our money on indicates what is important to us. And how we spend our money really does determine not only our own financial future and influences some of the things that we are able to achieve but potentially also influences the financial futures of our future posterity, as well.

That is why understanding first what budgeting is and why it is important is so necessary to our financial well-being.

 

What Is Budgeting?

The first question I want to discuss in this beginner’s guide to budgeting is this: what is budgeting?

The word budgeting, unfortunately, has some pretty negative connotations associated with it for some people. Some people treat it as if it is the dreaded B word. Some individuals feel that a budget is constraining, that it takes all of the fun out of life. And because of that misconception, they choose not to budget, and so they are robbed of the power that comes from truly making your money work for you.

The reality is that a budget is nothing more than, as I mentioned above, a plan for the way that you  choose to spend your money. You get to create the budget and decide how much you are going to spend in each budget category.

How to Get Started with Budgeting

In this beginner’s guide to budgeting I am going to share 9 simple steps to make a budget that will actually work to help you save money and reach your short- and long-term financial goals.

 

1. Track what you spend as you work to make your budget.

Track what you spend for a couple of weeks or a month to really get a good feel for where your money has been going. This doesn’t have to be perfect; just do your best. Use a debit card to make purchases and pay bills as much as possible during this time so that you can go to your bank or credit union website to see what you have spent. 

Sign up below (after step 2) to receive a free spending tracker form to help you with this step! Easy peasy!

 

2. Start with a simple, hard-copy budget.

When you very first start budgeting, I recommend using a paper budget. This gives you a simple way to create your first budget by helping you to get a rough idea of what you would like to spend where.

Sign up below for a simple budget and spending tracker forms that will help you get started!

 

 

Once you get the hang of budgeting and have done it for a few months, go ahead and switch to a digital system if you prefer. Or if you really can’t stand paper and you prefer to do everything electronically, you can build a budget in Excel or use a program such as You Need a Budget (YNAB.com). It’s a great, user-friendly budgeting tool with a lot of awesome features.

 

Check out these related articles:

Must-Know Tips to Rock Your First Budget!
Budgeting Fail? Try This Simple Alternative to Budgeting
13 Surefire Tips to Help You Stick to Your Budget
9 Must-Know Tips to Help You Finally Start Saving!

 

3. List all income sources as you work to make your budget.

If you have a job where you receive regular paychecks, this step shouldn’t take too long. Simply add up all income (for you and your spouse), and write that number at the top of the page. Don’t forget to include freelance income and any money earned from second jobs, overtime, or side hustles.

4. List all of your expenses.

Then begin to list your expenses. Don’t forget to include tithing and charitable giving in this category.

Do a zero-based budget so that every dollar you have goes to a designated place. If you don’t, it’s almost certain that the unallocated money will get blown in one area or another. Be intentional with all of your money so that your money really works for you.

First list your regular, fixed expenses. Gather your regular bills, such as mortgage or rent payment, car payment, public transportation pass, utilities, health insurance premium (if not deducted automatically by your employer), cell phone bill, internet bill, car insurance bill, and so on.

Here is an easy list for reference of common fixed expenses you can use when creating your budget:

  • Tithing
  • Charitable giving
  • Rent or mortgage
  • Renters insurance
  • Homeowners insurance and property taxes (if not paid with the mortgage)
  • Car payment
  • Automobile insurance
  • Life insurance
  • Health insurance
  • Dental insurance
  • Internet
  • Cell phones
  • Cable/satellite TV
  • Home phone
  • Gym or rec center membership
  • Retirement savings

Then list your variable expenses. After you add up all of your fixed expenses, figure out your variable monthly expenses such as groceries, gasoline, household expenses, clothing, entertainment and eating out, pet food and supplies, and toiletries.

Here is an easy list for reference of common variable expenses you can use when creating your budget:

  • Groceries
  • Household items (cleaners, towels, and related items)
  • Eating out
  • Gasoline/fuel
  • Public transportation
  • Clothing
  • Utilities (electricity, natural gas, water, sewer, garbage)
  • Toiletries, makeup, and related items
  • Child care
  • Pet food and supplies
  • House maintenance
  • Home furnishings and appliances
  • Car maintenance
  • Education/tuition
  • Kids’ school or sports/music expenses
  • Entertainment
  • Electronics/toys
  • Recreation/sports and vacations
  • Hair care (stylist/barber)
  • Christmas and gift giving

 

5. Decide how much money you will budget toward savings.

It’s likely when you first start budgeting that you won’t have a lot of money left over to put toward savings. It’s OK to start small, but as quickly as you can, start increasing the amount that you save toward specific categories. And no matter how little your income, start saving something right from the beginning if you possibly can, to get yourself into the habit of saving.

As long as you make a little more than your fixed expenses each month, then determine a realistic amount to save, and save that portion of your income before you do anything else—known as “paying yourself first.” If you plan to just “save what’s left over,” the chances that you’ll have anything left to save are slim.

If you crunch the numbers and you really just don’t have anything left over to put toward saving (and then paying off debt once your starter emergency fund is funded—see the next section for more information) after paying all of your bills, then you should look at ways to earn additional income.

6. Fund your starter emergency fund (EF) first.

The first thing you should start saving toward when you make your budget is a starter emergency fund. This is a crucial next step because an emergency fund gets you out of the mode of relying on credit cards and it really does virtually stop emergencies from happening. It’s not that your car’s transmission never goes out or your roof never springs a leak, but those things are no longer emergencies—they are inconveniences because you have the money saved up to pay for them.

You should put all extra money above bare-bones expenses (that means zero or very minimal spending on eating out, entertainment, and so on) into your emergency fund until it is fully funded. Treat building up a starter emergency fund like an emergency!

If you have consumer debt, start with a small emergency fund of $1,000 to one month’s worth of expenses (depending on how likely you are to need the money—for example, scale upward if you have an older car or home), and pay off your consumer debt before you build your full emergency fund of three to six months of expenses.

Try to build up your $1,000 starter emergency fund in a month or less by slashing expenses such as your grocery bill and entertainment spending, by selling stuff, and by earning extra money through overtime or a doing a side hustle or second job.

Learn more about how to fund your emergency fund as quickly as possible.

After you have funded your starter emergency fund and have paid off all of your nonmortgage debt (discussed in the next step), start working toward your fully funded emergency fund and toward saving for large purchases.

7. Start working to pay off your debts.

Once you a starter emergency fund of at least $1,000, begin working to pay off your debts.

After you start budgeting and have all of your expenses written down on paper, you will start to see areas where you can reduce your spending (see this article for more than 20 areas where you can cut your spending!) in order to start paying off your debt.

Once you have a good handle on doing your monthly budget, try to set up your budget so that you can pay extra payments on your debt in order to have all of your nonmortgage debt paid off within 18 to 24 months—or faster, if you can! (You may want to find ways to increase your income or find things to sell in order to help you reach this goal.)

In order to pay off your debts, use either the snowball debt payment method or the avalanche debt payment method.

Briefly, the snowball method is where you list all of your debts smallest to largest and you pay just minimum payments on all of your debts except for the smallest one and then throw all of the money that you can toward that smallest debt until it is paid off.

Then once that first debt is paid off, you use the all of the money from your budget that you were spending on paying off that smallest debt to attack your next smallest debt. And then work to pay off the next smallest debt, and so on.

With the avalanche method, you similarly pay minimum payments on all but one debt, but the debt that you attack first is the one with the highest interest rate.

You will save on interest if you use the avalanche method, but I recommend that you follow the snowball method because of the motivation that comes from paying off the smaller debts first and getting the emotional boost from those relatively quick wins. The snowball method is the method we used to pay off more than $60,000 in nonmortgage debt.

However, choose the method that will be most motivational for you, and just get after that debt!

8. Adjust your budget categories if you overspend in an area.

Because you’re going to go off of a zero-based budget, if you decide you have to spend more in one area than you planned for, then you need to pull the money from another spending category.

So if something comes up where you need to spend more on your gifts category, for example, because you receive a wedding invitation, then the amount in your entertainment category or fun money or clothing category or eating out or somewhere else will need to be adjusted. Your budget needs to balance out.

9. Continue tracking your spending each month, and adapt your budget as needed over time.

It will probably take about three months to work out the major kinks in your budget, but then it will really start to work.

You should create a specific budget for every month because no two months are exactly the same, but once you’ve been budgeting for a while, your budget will be mostly set and you’ll only have to make minor tweaks from month to month.

However, when major events happen in life that cause big changes in your finances, be sure to adapt your budget accordingly.

How to Succeed at Budgeting

Another important thing to discuss in this beginner’s guide to budgeting is how to be successful at budgeting. To succeed at budgeting, here are 4 more important things you can do.

 

Automate Your Finances to Succeed at Budgeting

To avoid getting overwhelmed with budgeting and managing your money, automate as much of your finances as possible. I don’t have any bills that I regularly pay with a check—we use bill pay for all of our expenses, including tithing and charitable donations. Automating our financial transactions saves time and makes life much simpler (and helps me avoid forgetting to pay my bills!).

If you want to learn more about how to automate your finances such as bill paying, saving, and investing to simplify your life and start to build wealth, I recommend The Automatic Millionaire by David Bach. It’s one of my favorite personal finance books because it gives simple, actionable steps you can follow. And check out this article for more information on automating your finances.

Use Cash for Budget Categories You Tend to Overspend On

Some areas that you’ll probably want to use cash for in your budget include food, entertainment, clothing, and personal and family fun money. You can use envelopes to keep your cash for the week or month or a wallet with different compartments, or set up separate savings accounts for (most of) these budget categories, like we have. You can learn how to stop overspending here.

Budget to Save for Large Purchases and Expenses as Soon as Possible

If you do not have any debt and you have already created your fully funded emergency fund, then start to save toward other financial priorities. In order to stay out of debt and build wealth, you’ve got to be able to cover your expenses without borrowing money. This means you need to have the money saved to cover these costs with cash. For financial well-being, all families should have the following savings accounts in place and be regularly funding them.

  • Create a vehicle maintenance and replacement fund as soon as possible. Shorter term, funding your vehicle savings account prevents regular car maintenance and unexpected repair costs from becoming financial emergencies. And longer term, this fund helps you save thousands of dollars in interest by paying a car payment to yourself instead of to a bank or other lender.
    Learn how to buy a car with cash and how to get out of an upside down car loan. Learn how to save money on car repairs here and find more than 30 tips for how to save money on your vehicle here.
  • Create a house maintenance or down payment fund. If you are a homeowner (or plan to be a homeowner in the future), then this fund is a must. Eventually virtually everything in your home will need to be repaired or replaced. And some of those items are really expensive. Yes, homeowners insurance will take care of many things, but whenever you can, you should be your own insurance plan—you should self-insure by having savings to cover those inevitable expenses that will crop up. This will help to keep your insurance premiums as low as possible—so raise those deductibles! And there are some things that homeowners insurance simply won’t pay for (generally), such as burst water pipes, collapsed sewer lines, and damage caue by earthquakes, mold, floods, and more.
    Learn how to save money on housing here.
  • Create other savings funds. Here are some examples of other savings funds that we have and that I recommend you set up as soon as possible:
    • Save for vacations, Christmas, gift giving, larger household items (such as appliances and furnishings), and more. Once you have the essential items covered in your budget (food, clothing, shelter, transportation, and utilities, for example), begin saving for things like vacations, Christmas, household furnishings and appliances, and so on. The easiest way that I’ve found to do this is by having separate savings accounts for each category. Shortly after I got my first job I signed up for an ING checking account. What I loved about ING is that I could add as many different savings accounts as I want, and see them all together (and the sum total of the money in our various accounts). ING has since been bought out by Capital One, and even though I don’t generally recommend really big banks, I have to say that I’ve never had a problem with my Capital One 360 account. In fact, the one time I did have a problem (which was completely my fault—user error), they fixed it in about a minute. Their customer service was great. I know it’s going to sound a little crazy, but we have over 10 savings accounts for different things—for me, I just like to know we won’t accidentally spend money we have designated for one thing on something else.
    • Create a dream fund. When you are out of debt and have begun to save for all of the above items, begin funding your dreams. Doing so is helpful because learning to be financially savvy isn’t just so you can pay all your bills and retire with dignity and give to the causes you support—though all of those things are extremely important. It’s also so that you can really enjoy the many things money can buy, guilt free and without debt. This might mean saving for a motorcycle, a nice car, an RV, a boat, an exotic vacation—whatever you want. If you’re young or have a lot of debt it may be years before you can fully fund or maybe even start these savings funds, but if you keep it in the back of your mind, it will help you stay on track financially and help you reach important financial goals along the way.

Budget Money to Save for Retirement and Save for Kids’ College

There’s a saying in the personal finance industry that the best time to start investing was yesterday—and the next best time is now. So as soon as you can, start investing for retirement in a 401(k) or Roth IRA (or both!), and start saving for your children’s college expenses in an educational savings account (ESA) or college 529.

Related: Learn how to become a millionaire by investing just $200 a month!

Even if you start with just $100 a month, the savings begins to grow quickly, and by seeing the progress you make, you’ll be motivated to save even more. We have investment accounts with both Schwab and Vanguard. Both are inexpensive, excellent options to help you start investing for retirement and saving for college today.

Find more information about how to succeed at budgeting here.

Common Questions about Budgeting

I also want to discuss in this beginner’s guide to budgeting a handful of commonly asked questions and answers about budgeting.

How Do I Budget for Irregular Expenses?

As mentioned above, it is also important to include irregular expenses in your budget. So, if you pay for your life insurance once a year, for example, then you should divide the annual premium by 12 and then save that amount each year in a specific savings account just for life insurance (so that you won’t inadvertently spend the money on something else). You can save for your auto insurance, automobile registration, and other such expenses in the same way.

How Do I Budget If I Have an Irregular Income?

If you have an irregular income, then base your budget on your earned income for the lowest month from the last 12 months. Then make sure that you also write a list of the priorities for the additional income that could come in. Put any extra money that does come in toward those priorities, in order from most important to least important (such as paying off your smallest debt) until the money runs out.

What If I Regularly Overspend the Budgeted Amount in a Particular Category or Categories?

If you are regularly spending more than the allocated amount in a budget category or categories, then this may mean that you are not being realistic about the budget category. For example, if you regularly budget $500 a month for groceries but you always spend closer to $600, then you may want to decrease another budget category or categories to have more money available for groceries. Or, alternatively, you can find ways to save money on groceries (find more that 70 tips here!).

That is true for whatever budget category you are overspending on. Chances are very good that you can lower the amount of money you spend if you really want to. You may need to find the motivation to save the money by finding meaningful long-term financial goals to work toward.

You can find more than 20 ideas for how to reduce your spending (for virtually every budget category) here. You can also find information on how to stop overspending here.

The issue could also be a lower than average income. If you make a low income, then one of your long-term financial goals needs to be to increase your income.

What If I Have Expenses That Do Not Seem to Fit in Any Budget Category?

It’s OK to have a small amount of money budgeted each month toward a “Miscellaneous” or similar category. We budget about $50 per month toward miscellaneous expenses (we don’t spend that much on miscellaneous items every month, but some months we spend more than that, so it balances out). This is basically like an “other household expenses” category for us. If you are budgeting much more than $100 a month, you probably need to take a look at what the money is going toward and make another budget category for that item or those items.

What Is the Best Budgeting Tool or Best BudgetingApp?

Because we started budgeting so long ago, we have always used a simple Excel spreadsheet that my husband created years and years ago that we just updated as we needed to with different categories (such as when the kiddos came along). However, after researching the different apps out there, if I were going to use an inexpensive but paid app, I would go with You Need a Budget (YNAB.com). They use a zero-based budget and even encourage you to get to the point where you are budgeting off of last month’s income, both of which I strongly encourage. They have really good reviews, and their app seems both robust and user friendly.

 

Final Thoughts on This Beginner’s Guide to Budgeting

If you want to be able to have financial peace and stability and eventually reach financial freedom, you have to be able to have money left over after your spending to save and to invest. And in order to do that, you have to master a budget or spending plan. If you want to win financially, as with any area of your life, you have to make a plan and stick to it. You can find information on how to stick to your budget here.

What questions do you have about how to make a budget or how to start budgeting? Have you tried to budget before and not been able to stick with it? Leave a comment below and let me know how I can help!

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

What Is a Sinking Fund? + How to Use Them to Stop Being Broke!

what is a sinking fund?

What Is a Sinking Fund?

In this article I am going to answer the question “What is a sinking fund?” And I will also list the sinking funds that I think every family should have (and some other fun ones that you might want to have, as well!).

Read on to learn about the power of sinking funds and how they can help you to stop being broke—for good!

 

Tip: Save the image above to Pinterest so that you can easily refer back to this article on what is a sinking fund later!

 

Tired of tiny interest rates on your savings?

Are you tired of tiny interest rates? Do you want a solid bank with a long history (one that has been around for over 100 years) who is focused on their customers and not just their bottom line?

 Then you should check out CIT Bank. We love our CIT Bank savings account, which offers the highest savings rate that we know of. 

Click here to learn more and open your savings account today!

 

What Is a Sinking Fund? Three Helpful Definitions

When I Googled  “what is a sinking fund” because I was curious what definitions I would find, this is the first one that came up: “a fund formed by periodically setting aside money for the gradual repayment of a debt or replacement of a wasting asset.” That’s pretty clear—except for the “wasting asset” part.

So here is another definition for what is a sinking fund, from the folks over at EveryDollar (Dave Ramsey and company): “A sinking fund is simply a strategic way to save money by setting aside a little bit each month.”

That’s not too bad of a definition. But here is what I would say, if you asked me “what is a sinking fund”: a savings account that you set up and regularly put money into in order to replace money you regularly or periodically spend on a specific purchase or expense.

Is that pretty clear? If you have an even better definition, comment below and let me know!

 

What Is a Sinking Fund Used For?

So now that we have given a basic definition for what is a sinking fund, let’s talk about what sinking funds are used for.

In order to manage your money well, it’s really helpful to use individual savings accounts to make sure that you are savings for the things that you need to be. Creating sinking funds will help you to get out of debt and to stay out of debt as you instead save up for and purchase or pay for the things that you need.

As soon as you have a fully funded emergency fund of at least 3 to 6 months’ worth of expenses, you should start setting up additional savings accounts for irregular or unanticipated (though not completely unexpected) expenses.

If your bank doesn’t allow you to easily set up multiple savings accounts, then I recommend setting up an account with an online bank such as Capital One 360. They have been a great bank for us and have one of the best savings interest rates around.

Read on to learn about 9 sinking funds that pretty much everyone should have, as well as a handful of additional savings accounts that may be beneficial (and fun to have!) in your situation.

 

What Are Sinking Funds That Everyone Should Have?

When you are considering what sinking funds to set up, here are my recommendations. Below I list the different sinking funds I feel that virtually every family (and everyone) should have (and that we ourselves have).

 

Vehicle maintenance and repairs

One of the most important sinking funds for most families (all who have one or more vehicles) is a sinking fund for vehicle maintenance and repairs. We all love our cars, but the simple reality is that they need regular maintenance and eventually they need repairs. So rather than having to put the bill on your credit card the next time your battery dies or your brakes need to be replaced or your transmission goes out, pull the money from your vehicle maintenance savings account.

 

 

Vehicle purchase

Another important sinking fund is a savings account for the purchase of a vehicle. Do you want to know where most people’s wealth is? It’s sitting in their garage. Really. I don’t mean that our vehicles make us rich. I actually mean the exact opposite, because vehicles go the wrong direction—they go down in value. They depreciate. And yet the average car payment in America is more than $400 a month.

Did you know that if you paid yourself that $400 a month for 40 years instead of paying it to the bank in car payments you would have invested $192,000 (can you believe that people spend that much on this depreciating asset?!), and at an average annual return of 11 percent, which is very realistic over the long term, you would have $2,907,969  in your investment account after that 40 years! Isn’t that amazing?

So instead of paying the bank that much money and all of the interest included when you finance a vehicle, set up a vehicle savings account and pay yourself a monthly car payment. That may mean that you want to sell your current vehicle that has a car payment and buy an inexpensive car to get around in until you can buy yourself a car for cash in a couple of years. (And if you cannot pay off your vehicle quickly, that is what I would strongly urge you to do. Please, build your own wealth; not the bank’s!)

If you can pay yourself $200 a month for 2 years while you drive a $1,000 to $3,000 get-around car, you would have about $5,000 to buy a little bit nicer car. And then if you drive that car for two more years, you could then buy a $10,000 vehicle ($5,000 from the value of the current car plus $4,800 from saving $200 a month for 24 months = ~$10,000). And then if you drive that $10,000 vehicle for four more years, you could then buy your next car, with cash, for $20,000. And because you’re going to buy a car that’s at least 2 to 4 years old, since you don’t want to take the huge bite that happens when you buy a new car (save that for when you have a net worth of at least $1 million and can really afford to take that kind of financial hit that comes with the depreciation of owning a brand-new car!), you can get a great vehicle for that price—and you’re just eight years into your vehicle saving plan. You would have a $20,000 car—and it would be paid for with cash! Amazing!

If you want to buy a vehicle for even more than that (though personally I hope to never spend more than that on a vehicle unless it’s an RV or sailboat or something—I like to use my money for things that go up in value), you could save more, such as $300 a month. If you saved $300 a month for eight years and earned a little interest on that, you would have about $30,000 to pay toward your vehicle, plus the resale value of the current car you were driving. And of course you could increase that by about $10,000 for every additional $100 a month that you chose to save—so if you wanted to buy a $50,000 vehicle with cash, you would need to save just $500 a month for eight years. Again, the average car payment in America is almost that much, so please, if you want to buy a vehicle that is that expensive, please save up the money and buy it with cash!

I know that having a car payment in America is normal, but you don’t want to be normal! Normal is broke and in debt and living paycheck to paycheck. Normal kind of stinks. So don’t be normal. Be awesome. And one of the ways you can do that is to get out of debt and never look back. Find out how you can save on the many costs related to car ownership by reading this article.

 

Auto insurance and vehicle registration renewal

Another important vehicle-related sinking fund is a savings account for auto insurance and annual vehicle registration and related fees (such as vehicle inspection and safety fees). By saving money for these expenses every month you can pay for your auto insurance annually, for example, which will generally save you money over having a month-to-month plan.

Whenever you can, it is generally a good idea to be your own bank!

 

Home repairs

When you buy a home, you not only sign up for 15-plus years of hefty payments but you also sign up for the upkeep and repair that a home requires. Home ownership (generally speaking) is definitely worth it, but you need to be prepared for the extra expense of home maintenance in your budget. You should save about 1 percent of the purchase price of your home for home repairs and maintenance each year. (If you have an older home, you may need to save more than that.)

So if you purchase a $250,000 home, that would be about $2,500 a year that you should save, or about $200 a month. This money can then be used for the deductible of your homeowner’s insurance if you need to make a claim, for example.

Note: You should consider putting your homeowners insurance deductible high enough that you never want to make a claim unless it’s something pretty catastrophic. So put your deductible at about $2,000 or more. That will keep your premiums significantly lower, but perhaps more important, it will keep you from making insurance claims that you should not make for things that you should instead pay for out of your house maintenance and repairs savings fund—or even your emergency fund if needed. If you make too many claims, not only will your insurance premiums get raised significantly, but you might even get dropped from your insurance company. And because your claims are visible to other insurance companies (on something called the CLUE, or Comprehensive Loss Underwriting Exchange, report), making too many claims will also make other insurance companies less likely to be wiling to take your business.

So instead, self-insure by having a fully funded emergency fund and then by saving monthly for the home repairs that you will need to make throughout your time in your home.

For more helpful information on saving money on housing, read this article with more than 30 top suggestions for saving money on housing.

 

Furnishings and appliances

It is also a good idea to include a sinking fund category in your budget for furniture and appliances.

You need to plan to do periodic repairs and replacement of your appliances and furniture. And you don’t want to have to rely on credit cards to do that. So instead, save up regularly for these eventually anticipated expenses. You’ll get a good feel for how much you need to save once you start paying attention to this, but if you’re unsure, start saving $50 a month. If you buy gently used furniture and appliances, you’ll get a great bang for your buck and be able to buy a lot of great things for $600 a year.

 

 

Christmas and gift giving

Another important sinking fund is a gift fund.

The way many people act, you would think they don’t realize that Christmas (and the cost of it) are coming until at least Black Friday. But you can plan better than that! If you spend the average $900 that most families in America do, then you can save up for Christmas for just $75 a month. Sweet! So get it done.

Or, you might also consider cutting back on your Christmas spending so you can save less each month and put the money toward other great causes (such as your children’s educations or your own retirement—now those are gifts that keeps on giving!). Read this article for ideas on how to save on your Christmas spending and this article on how to open an educational savings account for your child.

In addition to Christmas, look at saving some money each month for additional gift giving such as birthdays, weddings, and so on.

 

Vacations

Another important sinking fund is a vacation fund.

The best kind of vacation is the one that doesn’t follow you home in the form of credit card payments! So set up a savings account to save up for your vacations. You can estimate how much to save each month by looking at how much you have spent in the last year or two on family trips and vacations, but $100 to $200 a month is probably a good place to start.

Do you want to save money on your traveling and family vacations? Of course you do! If you haven’t checked out Airbnb yet, you need to! We love Airbnb for saving money on our accommodations while traveling! Give them a try; they’re awesome! You can get $40 off your first stay by signing up here!

 

Life insurance

If you have children and you are not independently wealthy (yet! :)), then you need life insurance. And one way that you can save on the cost of your life insurance premiums to pay for them annually. But that also means that you need the money available when it comes time to pay the annual premium. So set up a sinking fund to take care of that, that you fund every month with the amount that would be the annual premium divided by 12.

 

Miscellaneous/other short-term savings

We also have a savings account for miscellaneous purchases and expenses. You may want to have one to cover things that come up like purchasing electronics or bikes and recreational gear or things like that.

 

Tired of tiny interest rates on your savings?

Are you tired of tiny interest rates? Do you want a solid bank with a long history (one that has been around for over 100 years) who is focused on their customers and not just their bottom line?

 Then you should check out CIT Bank. We love our CIT Bank savings account, which offers the highest savings rate that we know of. 

Click here to learn more and open your savings account today!

Additional Sinking Funds You Might Want to Have

I’ve listed below some additional savings accounts that you might want to consider when determining what to save money for.

 

Utilities

Your utility bill is another thing, as you are considering what sinking funds to have, that you might want to open a separate savings account for.

When we lived in our previous home the natural gas company had a bill pay program where they equalize your payment every month so that it’s easier to budget, rather than having potentially really high natural gas bills to heat your home in the winter, for example. And that was a really handy option. But at some point I decided we could just save the money ourselves during the months when the utilities cost less and pull the money from our utilities savings account for months when our utility bills were higher, like the summer with the AC and the winter with the furnace. I really like being my own bank. 🙂

For ideas on how to reduce your spending on utilities, read this article.

 

Down payment

Probably the biggest purchase you will ever make is your home, so a down payment fund is another important item to include as a sinking fund. If you hope to be a homeowner in the foreseeable future, you should start to save toward the purchase of your home.

To be able to save as much money as possible in your down payment fund, rent as inexpensively as you can. Rather than rent a posh place with all of the awesome amenities, rent an inexpensive (but reasonably safe) place for as little as you can, and save the difference. There’s a lot you can put up with if you know that it’s only for a certain amount of time (say two to five years, as you save up a good down payment) and if it’s for a great cause. To learn more about saving up to buy a home, check out this article.

If you know that you are at least five years (and the closer you get to ten years or more, the more this might make sense) away from purchasing a home, you might even consider investing the money in mutual funds to earn more money on your money.

You might even consider what we’re planning to do for our next home purchase—the 100 percent down plan! We are planning to stay in our modest, three-bedroom, 1,300-square-foot home for the next five to eight years (we’ve lived there almost eight years now) so that we can buy our next home (that will probably be close to twice the value of the one we live in now) with cash. It’s maybe a sacrifice to stay in a smaller than average home with our three kiddos, but the payoff of never being in debt ever again is worth the trade-off. And as we save that money for the next several years, because it is a mid-term time frame of more than five years, we are investing the money in mutual funds in our Schwab brokerage account.

If you want to know how we choose the mutual funds that we are investing in to diversify our investments, enter your information below and I will be happy to email it to you, no strings attached.

     

    Baby fund

    Another sinking fund to consider setting up is a baby fund.

    Those squishy little cherubs not only cost a chunk of change at the hospital, but you may have heard that they cost some money once you bring them home, too! 🙂 The copayment or deductible and all that baby gear add up, so when we’ve been pregnant (and for several months after) with our children we’ve put $100 a month into a savings account to help pay for those expenses.

    Read this article to learn ways to save on expenses for your baby.

     

    Recreation and entertainment

    Another sinking fund you could set up is a recreation and entertainment fund.

    If you spend more money some months on recreation and entertainment than others, consider opening a savings account and just puling the money out when you need it. For example, if you get family ski passes and buy needed ski gear every winter, you might save up for that throughout the year so that it’s not such a hit on your wallet at the beginning of ski season.

    For ideas on how to save on recreation and entertainment for your family, check out this article.

     

    Wedding

    If you are engaged, then a wedding fund is another great sinking fund.

    When planning a wedding, open a separate savings account to save for it. If you have a specific date in mind and have figured out how much you can afford to pay for your wedding and related costs, you can figure out how much money to save each month for them. And yes, you should create (and stick to) a wedding budget!

     

     

    RV/boat/ATV purchase and maintenance fund

    You might also want to include setting up a recreational vehicle maintenance sinking fund.

    Cash is king. Saving up and paying for your recreational vehicles is the best way to go, so if you intend to have these fun toys, save up to buy them and to maintain them after purchase.

     

    OC fund

    OK, this is just one quirky thing that I do—among who knows how many. 🙂 But I don’t ever want to touch our emergency fund if we can help it, so in addition to having an emergency fund for larger unexpected expenses we also have an OC fund. You could say it’s our backup EF—our “Oh, criminy” fund (or another slang word of your choice that starts with C). Since most financial emergencies can be covered with $1,000 or less, that’s how much we have in this OC fund. We have pulled money from this fund and then replenished it, but because of our other savings accounts for car maintenance and home maintenance and car replacement and things, we haven’t yet had to pull money from our EF. (Knock on wood!)

     

    Mission, humanitarian service, or charitable giving fund

    If you have children that you hope will serve missions for your church (as we do!) or do humanitarian service trips or study abroad or similar things or if you give a substantial amount to charity on some schedule rather than monthly, you may want to have one or more savings accounts for these funds.

     

    Disney fund!

    A trip to Disney is another (fun!) thing to consider including as a sinking fund.

    We’re planning to go to Disneyland (and other fun places in Southern California) in a few years and then Disney World and nearby attractions within a few years after that, so I just recently opened a savings account to save specifically for these trips. If there is something similar that you want to specifically save for, you might open a separate savings account to do so, since opening savings accounts such as the ones we have with Capital One 360 is so fast and easy. (And having separate accounts is so convenient—and important, so that you do not spend money you intended to spend on one thing on something else!)

     

    Other helpful sinking funds

    In addition to those listed above, here are some other sinking funds that you might want to consider setting up:

    •  Homeowners insurance (if you have paid off your mortgage and need to pay the premiums yourself)
    • Property taxes (again, if you need to pay these yourself)
    • Medical expenses (if a flexible spending account is not available to you)
    • Pet expenses
    • Clothing and shoes (if you are like us and don’t buy clothes and shoes every month)
    • Children’s sports and other activities
    • Spending money (aka fun money, blow money)
    • College expenses (if you are close enough to needing the money that you do not want to have the money in mutual funds in a college educational savings account)
    • Memberships and subscriptions

    Final Thoughts about Sinking Funds

    I hope that you feel you have a great understanding now of “what are sinking funds?” Do you have more questions about what sinking funds are or how they should be used? Leave a question in the comments below!

    If you want to set yourself up for financial success, you’ve got to stop living paycheck to paycheck, like the majority of people do. And one of the most important factors to accomplish that is to have the cash (as savings) that you need to pay for expenses as they come up so that you don’t have to rely on credit card and other debt.

    As you are able to get out of debt, as Dave Ramsey says, you are able to free up your most important wealth-building tool: your income. By having the various sinking funds identified above, you can make sure you cover all of your bases so that you are prepared for life’s financial curveballs and opportunities.

    Similarly, by putting money aside in your monthly budget to save up for these expenses, they won’t cause you to go into debt so that you’re paying potentially hundreds of dollars in interest and they won’t derail you from your investing or other financial objectives—these (somewhat) unexpected expenses won’t keep you from reaching your awesome goals and dreams!

     

    How would you answer the question “What are sinking funds?” What additional sinking funds do you have that I didn’t mention here? I would love to hear your ideas, so leave a comment below!

     

    Invitation to Share

    Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!

    Join Our Facebook Group!

    Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.