Give every dollar a purpose. It sounds simple, but is it?

Financial guru and credit card killer Dave Ramsey has his method of helping people master their finances and get out of debt – the “Baby Steps.” Through these steps, people are led to financial peace and mastery of their money.

The first thing you must do to begin your journey to financial peace is to look at your finances. Dave recommends that you sit down, with your spouse if you have one, and budget. You must work together on this! This is an agreement between you and your spouse to control your spending.

Have nothing unassigned after your budget is complete – “give every dollar a purpose.” You will likely need to update and modify your first budget many times. Budgeting is a skill that takes time to master, so don’t get disheartened when you need to adjust it after only a week or two during your first month.

Now, this “Everydollar” method sounds simple: Give every dollar you bring home a purpose. First, you determine how much money you actually bring home every month. Next, estimate how much you spend each month and what you spend it on. Third, set some money aside for future expected costs – car repair, roof leak, birthday/graduation gifts, etc… Finally, allocate the remaining funds.

The reason you give every dollar a purpose on your budget is so you don’t have “extra” money to burn when it could be used to payoff debt or save towards a big purchase. You want to spend what you have budgeted to spend. Eventually, your budget should be extremely close to what you are actually spending that month. It just takes practice! Tweak your budget over the course of the month and you will start to get better. One day you won’t need to tweak your budget!

The key is to allocate every dollar you bring home but NOT a dollar more. As Dave says – “you aren’t Congress, you aren’t allowed to spend more than you bring in.”