Nobody likes the word budget. Budgets are time-consuming, limiting and let’s face it, no fun! Often when you think of budgeting you think of what you can’t have, what you can’t afford. Who wants to be reminded of what they can’t afford?!?
So first, let’s change the way you think about budgeting, more specifically a written budget. A written budget is you, telling your money where to go before the month begins. How often do you start your month with a written plan for how you are going to spend your money? I’m guessing not often, which is how we used to be.
Let’s think of it like this. If you were in charge of preparing dinner for 12 guests would you just go to the grocery store without a list to buy the food? Or instead, would you prepare your recipes, make a list of ingredients, figure out how much you needed and then go shopping. You might even plan how much you wanted to spend on the entire dinner and work your meal around that. You may even go so far as to have a written plan for what order you needed to cook the different dishes so everything was ready when the guests arrived. Your budget is no different, it is your written plan for how you are going to handle your money for that month.
If you have never written a budget you might think it is difficult or complicated. I have good news, it isn’t! Here are a few tips on how to prepare your written budget:
- Start with how much money you think will be coming in for that month. I know I get paid every two weeks and approximately how much I get paid. This part does not need to be exact because you can make changes throughout the month. Just estimate as best as you can.
- List your expenses. These will include your mortgage or rent, utilities, food, gas, childcare, etc. You can put these in order of priority, amount or however you want.
- You will have two columns, one for the amount you have budgeted, the other for the actual amount spent in each category. For example, I know my mortgage payment is fixed each month so the amount will be the same in each column. However, my electric bill varies from month to month. I just look at last month’s bill, round it up and use that as my budgeted amount. Once I know the actual amount I input that figure to the “actual” column. You will really start to get the hang of estimating expenses after a couple of months.
- Keep track of your expenses throughout the month, once you know an actual expense write it down. Don’t wait until the last day of the month to review your budget. Look over your budget worksheet often. If you start to notice you are way over budget in one category you know you’ll need to start cutting back somewhere else. The goal of this exercise is to have more control over where your money is going, rather than be surprised at the end of the month when the money runs out!
- You are going to tell every penny where to go! Include a category for any surplus money. We kept a category for additional debt payment because any extra money went toward paying off my student loan. We have since changed that category to savings because we are putting money away for an extended maternity leave. The key here is that your expense total and deposit total should be equal. If you have $1000 coming in this month you should have $1000 worth of “expenses” going out.
- Include a category for “Blow Money” or “Fun Money”. This is a category we use for the stuff we want that isn’t necessary. For example, I like to get my hair highlighted at a salon, I budget for that expense in this category. We include expenses such as Netflix and Hulu in this category also. Whatever it is you like to do, if you have a little extra money, make sure to treat yourself using this category.
- MOST IMPORTANT: This is your budget!!! You control the categories because only you know how you want to spend your money. You can make changes along the way. If something isn’t working, figure out a better way and change it. Don’t let the written budget control you, it is only a tool to help you get control of your finances!
Here is an example of a written budget filled out (I included a lot of the categories from our budget and just input generic totals):
As many of you already know, I have Dave Ramsey to thank for helping us get our finances in order. His advice and techniques for getting out of debt have changed our lives forever! If you want to learn more about creating a written budget he has some great tips, tools and free downloadable forms. He also has a budget worksheet and advice for people with an irregular or commission-based income. Check out his site here for even more info!
Other posts in this series:
- Getting Your Finances in Order – The First Step
- Getting Your Finances in Order – Prioritizing Your Spending