Financial Prep: How To Start A Budget

Bragging moment: I’ve always been decently good with handling finances. Numbers and self-imposed limits have always come rather easy to me. So living within my means was never a big issue in my life and I never really felt the need to carefully watch my spending. Of course, that seemed to be more at a time when my needs and wants fit well within my income. Now, with two kids and more expenses and a decreased income, the boxing gloves have had to come off and I’ve had to sit down and actually figure out how to live on a “budget”.

Probably the biggest thing that helped to prepare me for this was the fact that I’d recently read Dave Ramsey’s ‘The Total Money Makeover’ (which I highly recommend to everyone– budget or no budget). Having a better sense of how to handle money and a desire to make sure debt stayed out of the picture, I was able to look at budgeting with a positive attitude instead of a negative one. Attitude is a big key to the success or failure of your budgeting plan. So first off, do whatever it takes to get a positive outlook on your situation. Don’t resent where you are, just acknowledge your situation and be determined to master it.

Then it’s time to start looking at the numbers. I’ve found it easiest for me to work with my budget on a month to month basis, but this may vary for others depending on how often you are paid (biweekly, bimonthly, monthly, etc.) and other circumstances. You may find that doing a budget for every week is better for you, or for longer periods of time. I will write this process in a monthly format, but it can easily be adjusted to your situation.

Step 1: So first, I started by creating a list of my mandatory expenses. ALL of them. For the whole year. This included monthly expenses such as mortgage, household bills (electricity, water, gas, etc), health insurance, as well as annual or bi-annual expenses such as property taxes, auto insurance, home insurance, auto registrations, etc. If it’s a regular bill and something I have to pay throughout the year, it’s included. These are the fixed expenses. There are also variable expenses (such as groceries, gas, entertainment, gifts, etc) that we’ll talk about in a bit, but let’s leave those aside for now.

Once the list is made, put it all in a monthly format (or whatever frequency you are using). So for my bills that are already paid on a monthly basis, I just left those alone. But for my annual/bi-annual bills, I divided those by 12 (or 6 for bi-annual) to figure out how much that bill worked out to for each month (as though I were going to pay part of it each month instead of once or twice a year).

Step 2: Now we figure our total monthly income. This is easy if you have a set income that comes in every pay period. However, many jobs (including Hubby’s) vary a bit each month. This threw me off at first because I set up our budget under the assumption that every paycheck would be the same. However when I learned that we were paid bi-monthly instead of bi-weekly, our numbers got all thrown off. So I had to start again. Just one of the joys of budgeting. 🙂 So anyway, figure out how much money you have coming in each month. There may be multiple sources of income, small amounts here and there,  just be sure to account for it all. (Side note: Something I have started doing is using the income total from the previous month to be the amount of money I have to work with for the upcoming month. This is so that I know exactly how much money I am dealing with instead of trying to guess the exact amount that will come in.)

And now we do the math.

Step 3: Add up your total expenses for the month and your total income. If your expenses are less than your income, then you’re doing good so far. If your expenses are already higher than your income, then something is going to have to change. Fast. Because we haven’t even bought groceries yet! So hopefully you’re still good at this point. I will continue on in the assumption that you are.

The amount of income that remains leftover after paying the fixed expenses is what will be used to fund our variable expenses. And since we are not going into debt for any expenses, when the money is gone, the money is gone. So we have to use this money wisely!

Step 4: So according to your family’s needs, divide the remaining income into the expenses you still have for the month. For us this includes: groceries, gas, diapers, household supplies (cleaning supplies, laundry, etc.), clothing, gifts, etc. Dave Ramsey recommends having a certain amount allocated to each category. I tried this initially and felt like it was micromanaging my money a bit too much and I was getting annoyed/frustrated with it and starting to give up on my good budgeting habits. So what I’ve recently started doing instead is dividing the money into only two categories: gas and household. Hubby and I each get a certain amount for gas for our cars, and then the rest just goes to the family’s needs–whatever they may be that month. This works for us because we’re pretty thrifty anyway, but if you find that your budget is still hard to control that way, you may want to break yours down into smaller categories. And then remember: when the money is gone, it’s gone! You simply learn to say, “we can’t afford it” or “we don’t have the money for that right now”. Discipline is the only way you will be able to stick to your budget and stay out of debt!

Okay, so I know this is already super long, but let me give an example scenario in case that was just a bunch of confusing mumbo jumbo to anyone:

So, Johnny wants to get on a budget. First he lists all his fixed expenses. He has a $600 mortgage (clearly he lives in Texas!) :), his electric bill varies through the year but he calculates that on average it is $200/month, the gas bill (for the home) averages $50/month, health insurance is $400/month, tv/phone/internet is $150/month, he doesn’t have a car payment because he got out of debt on that, and yearly he pays $2800 in property taxes, $3000 in home and car insurance, and $200 in vehicle registrations.

He needs to figure out how much each month his yearly bills (taxes, insurance, auto registrations) work out to be, so he adds those together (to get $6000) and then divides that by the 12 months of the year. This works out to be $500/month.

Now Johnny adds up his income. He uses last month’s income to pay for this month’s expenses. So he calculates that last month he made $3000.

Now doing the math, Johnny takes the $3000 income from last month and subtracts this months fixed expenses (starting with tithing, of course!). S0 we have $3000 minus $300 (tithing), $600 mortgage, $200, $50, $400, and $150 (a total of $1700). This leaves $1300. Now he also subtracts the $500/month that he needs for his yearly bills and puts that away into a savings account that is set aside specifically for that purpose. (And then on any given month when Johnny has to pay for one of those yearly bills, he simply pulls the needed amount out of that savings account to pay for it.) This leaves $800 for the month. This is what is left over for his monthly variable expenses. So he divides that $800 and gives himself $250 for gas for his car, $350 for groceries and household supplies, $50 for clothes and entertainment, $50 for extra expenses (such as oil changes on the car, gifts, etc.),  and the rest ($100) gets put into either a savings account,  or mutual fund for retirement. {Of course, if Johnny had any debt he was still working on paying off, he would tighten his expenses–maybe get rid of the tv bill, cut down on grocery bills, and cut the clothing/entertainment by 90%– and pay all the leftover to snowballing his debts.}

Tada! A successful budget. Clearly Johnny’s expenses are not quite a ‘real life’ list of expenses. There are always so many more. But you get the idea. And then you start again next month with a new income number and new expenses and a new determination to keep your budget in check and live within your means! 🙂

Yes, it’s an ongoing process and certainly not always the easiest thing to do, but I promise that it gets easier the more you learn where your pitfalls are and correct them and the more you stick to it.

Good luck and best wishes!

P.S. Here are some other good articles you can read on the topic if you’d like:


6 thoughts on “Financial Prep: How To Start A Budget

  1. budget drop-out says:

    I don’t want to leave my real name, but I promise you I’m a real person, and I need some help to master budgeting. Estimating expenses and making a monthly budget is not a problem — I’m pretty good at that. My problem is keeping track of actual money spent. I used to be so good at it — I would itemize my receipts by category, down to the penny, and carefully subtract all expenditures in my spreadsheets. Now I have months of receipts, not to mention unrecorded cash outlays, and I don’t know how to get this mess under control. How can I make sure I’m not overspending my budget categories, without driving myself crazy, and preferably without carrying around large amounts of cash?


  2. Debbie says:

    To Budget Drop-Out:
    I’m not a financial expert, but my personal opinion is: you gotta do what will work for you in your circumstances. It may not be elaborate or even ideal, but if it works, it works. Back before I had any children, I was very good about balancing my expenses against what the bank had listed, checking everything every month, and yadda yadda. That simply is not practical for me anymore. I just do not have the time to be that detailed and micromanaging with my money (or at least that’s not a priority where I choose to spend my time). Next week I am going to go into some detail about using “cash envelopes” (one of Dave Ramsey’s budget systems), and that is the system I recommend for anyone with a life that is also trying to maintain a budget. The principle is that you have an envelope for each of your categories, and you put the cash allotted to those categories in each envelope. That money is there to spend throughout the month and when it’s gone, you’re done spending in that category. This way you don’t have to keep track of the details of what was spent in each category, but you still at least know how much has been spent and how much you can still spend. There are some pluses and minuses that, again, I will go into more detail on next week but this system has been working pretty well for me. Hopefully that helps a little. 🙂


  3. Angie says:

    To Budget Drop Out:
    I know this was a whole year ago…but how do you pay for things? Mostly on debit or credit cards? Cash? If you’re a card user and do things electronically, an online budgeting tool might be good for you. We just started using a few months ago. You set up your accounts on it then it pulls in everything you spent. You just have to allocate where it goes. It will also “remember” how you allocated that purchase the last time you spent it. Also, you can split the bill…like if you bought groceries and household supplies at Costco, you can split the bill so it gets allocated correctly in your budget.

    I was trying the Dave Ramsey paper budget for a few months, but since we do everything electronically now, an electronic management system works so much better for us. There are other options besides That’s just the one we use.

    Good luck!


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s