This month, I’m outlining four steps everyone should take to start a budget. Last week, we talked about the importance of knowing your numbers! We should know exactly how much is coming in each month, how much is going out, and how much is in our bank accounts. If you missed that post, click here to get caught up. No, really! I’ll wait riiiiiiiiight here until you’re ready. Go on!
All set? Now that you know your numbers, it’s time for our second step: know your budget! A couple of things to note before we dive into the nitty gritty details of writing out our budgets…
First, a budget will look different every month.
There is no perfect budget. Each month, your outgo might look a tad bit different from the previous month due to holidays like Mother’s Day or Father’s Day, birthdays, anniversaries, baby showers, etc.
As soon as I realized this, it was so much easier to wrap my head around budgeting. A quick glance at my calendar usually tells me what special things might be coming up that I need to include in my budget.
Second, it will most likely take you a few months to get in the swing of things.
I suggest if you are relatively new to being on a budget (or actually sticking to a budget), that you give yourself an extra cushion. We will talk more about this, but accept the fact that there will inevitably be a few things you forget to budget for or a few things that come up unexpectedly.
If you have more wiggle room in your budget in anticipation of this, it won’t set you back! If you don’t need the wiggle room, you can either transfer the extra to savings at the end of the month, use it to pay more towards debt, or keep it in your account as the next month’s wiggle room.
Give yourself grace. Don’t get discouraged. Celebrate the successes, and chalk the mistakes up to lessons learned so you can improve even more next month.
Lastly, be flexible!
The categories and/or numbers assigned to those categories might change in the first few months while you figure out your patterns of spending. These categories should be an outline for the month, a guideline about where you spend your money. What you think you spend your money on might just change as you start to pay more attention to it. Feel free to tweak things to what works best for you.
Okay, now that we have talked about those things, let’s get started….
Step 1 – Grab your list of spending categories that you made last week.
You should know your numbers at this point. How much comes in every month, how much goes out every month, and how much is in your bank account most days. If you missed the first post in this series, I would highly encourage you to start there. Spending a few minutes making sure you know your numbers is a must before you can make an effective budget!
The list you made last week should be some general categories of where your money goes each month. For example, bills, groceries, gas, fun money/entertainment, eating out, clothing, auto repair/maintenance, savings, debt, etc.
Step 2 – Divide up your categories into groups of fixed and variable expenses.
Make another list (nerd alert – I really like lists!) this time one for your fixed expenses, those expenses that usually stay the same every month…mortgage/rent, cable, internet, cell phone, insurance, etc. On the other side of this page, write all of your variable expenses. Varia-huh? Variable expenses are the ones that can change month to month based on how much (or how little) is left over after paying most bills…eating out, fun money, clothing, etc. This will be the place to focus if you realize you are spending more money than you are bringing in. If this is the case, you need to lower some of your expenses from the “variable expenses” until you are at least breaking even each month.
Step 3 – Make an outline for the month.
Some people get fancy shmancy and use spreadsheets or software programs to allocate their spending. I am kind of old-fashioned in that I prefer a plain ol’ spiral bound notebook. Feel free to use my made-up example as a guide.
Write how much money you have coming in. Take a look at your fixed expenses. Write them all down, subtracting their cost from the amount of money you started with to figure out how much you will have left. Once all of the fixed expenses are written down, look at the variable expenses. What are things you KNOW will come out? Does your husband need a new suit for work? Is there a birthday party you know will be coming up this month? Any school expenses that will need to be paid this month?
Once you know what HAS to be paid, you should have a good idea of what is left over.
Step 4 – Divvy up extra money.
Have a good cushion in case of unexpected expenses, or anything you might forget about. I usually keep a cushion of $50 each paycheck. We have stuck to a budget so long we rarely tap into it, but when we first started REALLY sticking to a budget, I kept a bigger cushion in our account. This is a personal decision. $50, $100, $200? Do what works for you! What will make you most comfortable? Do that!!
The trick to budgeting is making a plan for every dollar coming in. You get to decide where it goes. But by deciding, and sticking to that decision, you can be more intentional with your money. And being intentional will help you reach your financial goals, whatever that might mean for you.
Step 5 – Stick to it!
Even the best thought out budget isn’t worth a hill of beans if you don’t stick to it. Make sure you keep track of your spending. I use cash for most things not paid online. On the front of my envelopes, I write the total I start with at the beginning of the month. Each time I spend in that category, I deduct it and write my new total on the envelope. At a quick glance, I can tell how much is left in each category.
If you don’t use cash, you could make a chart of your categories and keep a running total of what is left in each category. Just update that category’s totals each time you spend. If there is extra money left in any categories, you get to decide where you want it to go! Savings, debt payoff, eating out to reward yourself for your sacrifice? You make the call!
Next post, we will be talking more about using a cash budget and how it can help you reach your goals.
For more on this series: