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Yankee Bill and I have never really been into using a budget. With our frugal habits, we found that we saved money in so many areas that typically we could be very casual about our finances and do fine. We had a general idea of what came in and went out regularly and a nice enough cushion that we could play it by ear.
Recently things have changed. The rise in prices of just about everything in the last two years coupled with Yankee Bill switching careers to something more personally and professionally fulfilling but slightly lower paying has led to a realization.
It’s time. Time to get a firm handle on our finances.
So we are creating a budget. We don’t want to, and we’ve been kind of dragging our heels, but we are going to do it. Actually, creating a budget really isn’t that difficult~it’s the sticking to it that can be hard!
5 Simple Steps to Create a Budget
Step 1: How much money is coming in?
The best place to start is to figure out what money is coming in. We will consider things like:
Salary
Alimony/Child Support
Social Security
Retirement Income
Disability Payments
Step 2: How much money is going out in regular, defined payments?
Next we need to figure out how much money is going out-but rather than jumping in and trying to decide how much is “allowed” for fun money, or what the grocery budget it, we’ll start with the things that we know are set in stone. Things that we can count on~the mortgage for example. Then we’ll add in the ones that we can make a pretty realistic guess for, based on past experience, like utilities. Some common examples of these “defined” expenses are:
Mortgage/Rent
Taxes
Utilities
Car Payments
Loan Payments
Health Insurance
Car/Vehicle Insurance
Home Owners or Renters Insurance
Alimony/Child Support
Daycare/After School Care
Tithe
Retirement Savings/Investments
College Savings
Cell Phone Plan
Memberships (Gym etc)
Cable
Internet
Tada! That’s the easiest part done!
Step 3: How much money do we spend on variable expenses
Next is the slippery stuff-the expenses that change depending on the month, the situtation and your willpower.
Before we start talking numbers, we will just list out every other expwnse category we can think of to make sure we have them all.
Here are the most typical examples that I’ve thought of.
Groceries
Toiletries/Cleaners & Paper goods
Gas
Vehicle Maintenance
Medical Co-pays etc
Entertainment
Clothing
Gifts
Office supplies
Classes or Memberships (dance classes, gym memberships)
Charitable Giving
School Supplies
Gardening/Landscaping
Home Maintenance and Repair
Pet Care
Savings
Credit Card Debt
(Of course this list will be different for every person, depending on lifestyle and individual priorities.)
Them it’s time to assign amounts to the variable expenses. I think we will start by estimate what we are realistically currently spending. Once we’ve got it all listed out, we’ll take a deep breath and add it up and see how far “off” the expenses are from the income.
Then we’ll “get real” and cut back on the various categories until Expenses and Incomes balance out.
The key to the entire process of creating a budget is to be realistic. Unrealistic goals will lead to failure.
Just as an example. . .If you have a family of 5, $30 isn’t likely to make it as a monthly grocery budget. Someone who works late 3X a week and doesn’t know how to cook allocating $0 for takeout is probably a bad initial goal. On the other hand, if like me you already have a closet full of clothes, then not spending any money on your wardrobe for a few months is very reasonable.
Step 5: Review and adjust the budget.
After the first month we will review our budgeted expenses against the actual expenses. Where did they fail to match up? Did we forget a category or severely underestimate our variable expenses? Was the failure due to unrealistic goals or loose spending? Can we rearrange the money from categories within the budget, or do you need to cut down on our spending somewhere else?
The initial budget may need to be adjusted monthly for a few months until all the kinks get worked out!
There you have it, our easy plan to create our very own budget. We’ll be going through these steps very soon!
So, how many of you have a budget? How did you create yours?
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