How to Create a Budget

Budgets are necessary.  Consider this, you would never climb to the top of a mountain without creating a plan and taking the necessary supplies.  Likewise, reaching your financial goals requires a plan for spending and saving. Creating a budget isn’t impossible. It starts simply enough. All you have to do is realize that following a budget is something you have to do. Making a realistic budget with budget categories can go a long way towards changing your life dramatically.

How To Create a Budget

Creating a budget with budget categories isn’t difficult.

Determine how much money you bring home each month.  This is all the income you make after taxes/health care/retirement, and it can include tips, supplemental income, and side-job income.

Track your expenses.  Save all your receipts for one month. Doing so will give you a clear picture of how much you’re spending on things like groceries, gas, clothing, eating out, and more.  You will use those receipts to determine how you are spending your money when you set up budget categories.

Creating a budget means creating budget categories. This is one of the steps that trips up a lot of people. It’s actually not that big of a deal. Create categories that break down everything you spend money on into manageable sections. You may have categories for groceries, car, housing, entertainment, clothes, medical, pets, allowance, and more. Once you have categories, record how much you spend in each area.  Strive for as much accuracy as you possibly can. Once you know how much you spend in each category, calculate the total you spend in each category.  Were you surprised at how much you spend on eating out or going to the movies?  Seeing those numbers in black and white are certainly eye opening.

If you are having trouble breaking down your expenses into categories I will share what we have.  Our budget categories include the following: Mortgage, Home Phone, Cell Phone, Internet/Cable, Netflix, Exterminator, Student Loans, Gym, Hair Cuts, Electricity, Water, Natural Gas, Garbage, Lawn Care, Groceries, Fuel, Family Fun, Clothing, Pets, Children’s Activities (dance, karate, etc), Girls Allowance, Allowance, Spending, School Lunch, Car Repairs, Home Maintenance, Car Insurance, Life Insurance, Birthdays, Christmas, Photos, HOA Fee, Termite Bond, Car Replacement, Vacation, College Funds, Savings.  Whew!

Define your spending and savings priorities.  Once you have a ballpark of what you are spending determine if that is where you expected your finances to be.  Calculate the bills that you have to pay each month (mortgage/rent, electricity, water/sewer, garbage, food).  Compare this number to your monthly income.  Calculate how much money you want to put into savings each month and move that money to a savings account.  You can set this up to auto deduct from your paycheck.  Then you can create the other “fun” budget categories.

Having a budget does not mean cutting out all of your fun.  Having a budget allows you to control how much fun you have!  When you have a budget you will be able to allocate money into categories that fit your lifestyle.  It sounds funny to say this as an adult, but each month I get an allowance.  Actually, all four of us have an allowance.  Our girls have a Chore Chart to earn money and my husband and I each have a monthly allowance.  This allows us to buy the things that we want – possibly after saving up for a few months (I think my husband will eventually buy a Wii U whereas I tend to spend my allowance at Chipotle. True story).

Keep track of your budget. Software programs are available that can help you stick to your budget, or you can pick up a home budget notebook or ledger.  Two budget programs that I recommend are Mint (free) and You Need a Budget ($60).  We used Mint for years and purchased You Need a Budget in January.  They are both great programs.  I tried really hard to like Mint since it is automatic and easy…but I have found that You Need a Budget is a better fit for our family.

Have regular budget meetings.  A budget works when everyone involved is involved.  My husband and I meet weekly to biweekly to discuss where we are with our finances.  We have savings goals and reaching them is incredibly important to us.

Do you have a budget that you follow?  How often do you have budget meetings with your spouse/significant other/family?  If you aren’t already budgeting, you can do this budgeting thing!  Start saving those receipts now.

Check out these Ways I Save for more budgeting inspiration.