Budgeting 101

A step by step guide to create a budget is:

  1. Record your monthly net income (After taxes are taken out)
  2. Record your monthly expenses (All bills, fixed and varied)
  3. Record your monthly expense categories (things like groceries, gas money, coffee budget, and other spending categories)
  4. MAKE SURE YOUR EXPENSES ARE NOT GREATER THAN YOUR INCOME!

If you’ve read some of my previous posts, you’ll find out that in our household, I am the prime caretaker of the budget.  I have a very specific way of keeping track of it, so my husband allows me to take the reigns. However, I will say this in every post, if you are in a relationship, TALK ABOUT MONEY!  (Check out my post on love, communication, and money here)  About once a week, I sit down with my husband and look at our budget, that way he knows what’s going on and how we are doing financially. All that to say that in my very picky and anal way of organizing our finances, my husband and I have multiple different categories.  The amount and number of categories you have, is up to you! I prefer having multiple, because it allows me to better keep track of our spending. My husband and I have 12 categories for our budget, and it changes pretty often, as we reach different seasons in our life or attempt to make new priorities. 

If you read my Before you begin budgeting post, I give you a few rules to follow before you begin budgeting.  These rules are really important if you want to get serious about budgeting and getting out of debt!  For this post, we’re going to begin setting up and building your budget.  We’ll first focus on your expenses.  Your expenses are a monthly payment toward some type of commitment or service.  Here’s an example of me and my husband’s budget expense categories.

  • Tithe
  • Mortgage/Rent
  • Student Loans
  • Car Payments
  • Car Insurance
  • House/Renters Insurance
  • Spotify, Rhapsody, Pandora (or other music subscription accounts)
  • Cable, Internet, Phone Bill
  • Cell Phone
  • Gas
  • Electric
  • Water
  • Waste/Garbage
  • Netflix, Hulu, HBO (Or other tv or movie accounts)
  • Any other monthly bill you have, that I forgot and is not listed here. (Let me know, and I will add it to the list!)

One of the easiest ways to make sure you are not forgetting any monthly payments you may have, is to simply look back through your bank accounts, or simply just look back through your stacks of bills.  Make a list of all the companies or accounts, and be sure to record the amounts. It is extremely important to make sure you get EVERYTHING.  So often, people will forget their Netflix account, or some other small account.  Although, it’s only $7.99 a month, it’s so important to keep track of everything that goes out. If you forget about some small account, and it’s still being taken out, remember that it is the same as going $7.99 into debt each month!  In one year, that’s about $96. In 5 years that $480! Even the smallest amount of money, will add up! So be sure you have every bill listed!

Now, that you have every bill listed, and you’re sure you did not forget anything; now split your bills into fixed and varied bills.  A fixed bill would be something similar to your mortgage. It’s a bill you pay the same amount every month, and it doesn’t change. Examples of fixed bills are:

  • Tithe
  • Mortgage/Rent
  • Student Loans
  • Car Payments
  • Car Insurance
  • Other Insurance Payments
  • Netflix or other tv accounts
  • Gym Memberships

Place all these into one column, under fixed expenses.  These bills you know, and you can count on. There really isn’t anything you can do to change the payments.  My blog post, cutting down fixed and varied monthly expenses, gives some tips and ideas for trying to cutting down some of these categories or monthly payments.  

Next, list out the varied expenses. This is often times bills such as:

  • Electric
  • Gas
  • Water
  • Cell phone

Varied bills can simply be defined as a monthly expense, that varies each time you receive the bill.  Make a separate column for these too. Personally, the easiest way to keep track of these varied expenses, is to base them off of your highest bill.  In the summer, our electric bill is much higher, because of running our air conditioning. So I base my electricity budget, on the highest bill I’ve had.  In the winter, our gas bill is much higher, since we use gas to heat our home. So, in the same way I base my budget on the highest gas bill I’ve ever received.  Then, when you are under that amount, it’s nice to have a little extra money to put in savings, or do with as you please!

Finally, it’s time to determine your other budgeting expense categories.  These can easily be figured out by once again, keeping a monthly spending journal.  That way you can see the trends you have in spending and create your categories based on these.  I asked my sister and brother in law to try making a spending journal.  My brother in law realized how much money he spent at the vending machines at work, and my sister realized how much money she spent on coffee at a local coffee shop.  They needed to make some cuts in their budget, so by making this journal they were easily able to begin making coffee at home and packing a lunch for work.

Here’s a list of some expense categories my husband and I use:

  • Groceries (duh! definitely have an amount so you can eat!)
  • Transportation (Whether it’s gas money, bus fares, subway fees, whatever, plan that spending each month)
  • Home Improvement (This amount usually turns into a mini savings, where we save it each month and eventually can make larger purchases such as fixing our furnace or getting new flooring)
  • Alcohol (My husband enjoys have a beer at home and I enjoy wine, so we generally have a separate budget to incorporate this, it’s just what works for us.  On those tight months, this is usually the first category to go to $0 and we use this money elsewhere)
  • Going Out (Date nights, going out with friends, the movies, whatever!  This category is dedicated to going out!)
  • Pet (Dog food, cat food, flea medicine, alllll those animal expenses 🙂 this can also become another mini savings account, for your yearly check ups or shots!)
  • Car (oil changes, tires, whatever! This is another category that can also become a mini savings account, so you’re not surprised by a huge mechanic bill when your car needs work.  Save this up over multiple months, and that blow will be a lot less)
  • Misc (This is for things like weddings, baby showers, birthdays, Christmas, whatever miscellaneous things you may be invited to.  For us, this also turns into another mini savings for the end of the year and Christmas time comes.  Our family is huge, so we try to save money early so we don’t have to put Christmas presents on credit cards!)
  • Baby (Yup! pretty self explanatory!)
  • Young Living (I am signed up for the Young Living Rewards Program, if you would like to find out more about it click here, so we definitely figure that into our budget)
  • Savings (If your budget is tight, try to take money from one of the other categories before you take it out of your savings.  Don’t take money from here unless you absolutely have to.  Begin getting into the habit of saving money, even if it’s only $10 a month)

And there you have it!  Find a budget journal, expense tracker, or make a google document (like my  husband and I) and start keeping track of those finances!  You can do it!  Remember to communicate, stay consistent, and never spend more than you earn.  We are with you in this crazy, overwhelming adventure called life.  You are not alone!  Please email me or comment any questions!  I will be glad to help in anyway that I can!

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