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Before even thinking about creating a budget, talk to your spouse to get their ideas. Make sure you sit down with your significant other some part during the budget to get their say in the matter. I usually make it, then go over it with him and we make changes together.
Before we start to create your budget, get a blank sheet of paper.
We’ll call this your Budget Worksheet. Make 2 medium columns, and 6-12 small columns (my example has 6). In the first column label “Expenses” (this is where you will put all your bills, other expenses, savings, ect). In the second column label “Budgeted” (this is the amount you will budget for each expense). The last 6-12 other columns will be labeled each month (Jan, Feb, Mar, ect). I talk about each of these more below.
1. Create your budget expenses list.
In order to create your budget, lets divided your expenses up into categories. Each item in this list will be under the “Expenses” column. I separate these into three categories: Bills, Savings, Other/Convenient
First, place all bills on your list.
This includes any MUSTS, as well as bills that keep you from going further into debt.
Some examples are: mortgage, utilities, water, phone, credit cards minimum payments (I recommend Dave Ramsey’s “snowball” method of getting rid of debt), food, gas, tithing, internet, daycare, ect.*
Next, add your savings to the list.
I recommend adding more than just a basic umbrella savings.
Do you have bi-annual bills, or annual bills? It’s good to save a little each month so you aren’t taking out of your savings each year, rebuilding it, then spending again. You get no where.
Some Examples are: Car Insurance, Life insurance, Christmas/gifts, vacation, medical savings (if you don’t have HSA), basic car savings (registration, oil changes, extra for down payment for new cars), and a basic savings category
Finally, add Other/Convenient items.
These items are things that make you happy and comfortable or things you occasionally need,
Some examples are: home improvement, children’s (diapers, clothes, toys for gifts), pleasure, food storage/emergency preparedness, other expenses, date fund, things to support your hobbies, ect.
2. Figure out your average monthly income.
It’s always better to round down on your income then up. This way, if you miss calculate, it’s always nice to have extra. Please do NOT include the 3rd pay check if paid 2x week, or 5th pay check if get paid every week. That income will go under and “extra pay check” section.
3. Divide up the cash.
Now that you have your list of expenses and a total monthly income amount, it’s time to divide up the cash… per say. (I don’t actually use cash or the envelop system because it’s too much of a hassle for us, but next weeks post shows how I can still see quickly what I have left in each budget area.) We will divide up the money in the same order as creating your “bills list”. Once you know how much money for each expense you will put this under the “Budgeted” column on your paper.
Start with your bills because you should already know the specific amount on most of them.
Try to estimate the amount you spend on food/gas and stick with that number for 2-4 months. If the average is way above and/or below, then change the number down the road. Down the road, you might also want to decrease the food/gas budget so you can use the extra money to pay off more debt, or put into savings. I combine my water/gas/electricity together under an umbrella number (like $200), because summer/winter they tend to change and average themselves out. You can also look at your previous months bills for the utilities (3-6 months) to get an average to put in the budget.
Now that you have all your bill numbers down, get the total, and subtract it from your total income. The number you have left, you will divide into savings and other expenses.
Now it’s time to play with the numbers… this is where I usually sit down with my husband to get his input as well.
Lets work on your “savings” categories.
Start with your savings that you know you need to save for (car insurance, medical, Christmas, ect).
*Car insurance $600 every 6 months- put $100 into budget
*Christmas want to have $1000 to spend- put $85 into budget
*Vacation- I started with $50 into budget because that’s $600 a year and can save up
Do you see where I’m going with this? If you are worried about putting to much into savings start with $20 or $50.
***Just remember, if you are going to go into DEBT or dip into your SAVINGS for Christmas/Vacation/Car Insurance… make sure you put money aside each month for this. Then when you do have an emergency, or want to put a down payment on a car you HAVE they money in your savings***
Finally, the “Other Items”
After planing out your savings budget numbers, subtract that from your total income, along with the bills subtracted, and see the number you have left over…
This number is where you will figure out prices for your Other items. Again, try to estimate numbers you think you have been spending on these items. After 2-4 months of comparing what you actually are spending, adjust as needed. I try to give specific areas… but not too many. In my budget they are date night, children (clothing, diapers, ect), home improvement, pleasure/hobbies and an other expenses. My “other expenses” money goes to the other random stuff we don’t buy every month such as work expenses, church expenses.
4. Double Check
Make sure your INCOME is either the SAME or LESS than your expenses.
You will ALWAYS ALWAYS ALWAYS spend more than you plan… so you don’t ever want to over budget yourself. Some areas you might spend less, and others more… so it evens out usually at the end.
Remember, the first few months might be kind of difficult because you aren’t sure how much you spend in some areas. Each of the total monthly expenses (at the end of the month) will go under the rest of your columns for Jan, Feb, Mar, ect.
Remember that extra pay check? I recommend making a small list of items below your chart to use that for.
Some examples may include: second mortgage payment to get a head, extra medical savings for a baby, extra towards car you are buying in a year, extra towards debt, ect.
Read more on how to budget or One-Time Expenses here.
What are some things you add to your budget that I didn’t include?
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