Budgeting is hard. Creating a budget is even harder, especially the first time. I remember the first time I sat down and tried to figure it all out. How much did we bring home each month? What did we spend at the grocery store? How much were our credit card payments? All of these questions swirled around in my head and it was overwhelming. When you are creating a budget it does not have to be hard.
After much trial and error, my husband and I have finally mastered the monthly budget. We know exactly what we expect to bring in and how much we are spending. We are spending less than we make! Now, that’s a win in my book (especially since we went years with spending too much).
Creating a budget gives you security for your family. It gives you the knowledge and power to spend your money based on your goals. Budgeting gives you power over your money.
Creating A Budget
Calculate Your Monthly Income
This is the most important step because your monthly income is the basis for your budget. This is your take-home pay (after tax) for your household. First, if you are married you should include your spouse’s take-home income as well. Likewise, include all net income such as full-time jobs, side hustles, social security or any other source of income you may have.
Wife Full-Time Job: $2500
Husband Full-Time Job: $4000
Wife Etsy Shop: $500
Total Income: $7000 monthly
List Your Expenses
This is the hard part. You need to write down every penny you expect to spend throughout the month. This will include your housing costs, groceries, fuel, car maintenance, credit cards, loans, spending money etc. You want to be as detailed as possible with your list of expenses. Don’t forget about those quarterly expenses you may have like your HOA fee or car insurance.
Look back three months to see your spending habits. This will give you an idea how much you are spending over a period of time to better budget your expenses. Tracking your past expenses is difficult but it will give you a better idea of where you are and where you are going with your budget.
Credit Card 1: $50
Credit Card 2: $25
Car Payment: $500
Total Expenses: $2525
Subtract your expenses from your income
Total Money Left Each Month: $4475
This is where the budget can get messy. Subtract your expenses from your income. You want to be at zero or in the positive. If you are spending more than you bring in each month you’ll be going further into debt. Your budget needs to be adjusted.
Track Your Expenses
Tracking your expenses is the key to running a good budget. If you only write down your income and expenses and never track it you won’t know if you are on track. You will want to track each transaction you make to ensure you are not overspending your income.
Your first month of budgeting may be messy. You may overspend and have to borrow money from another category. You may have forgotten a few expenses. That is okay. A budget is always evolving and each month we need to adjust our budget.
Creating a Budget Based on Goals
After you get the hang of the budget it is time to take it to the next level. You will want to budget your money based on your goals.
Financial Goals include:
- Becoming debt free
- Saving 3 to 6 months expenses for emergencies
- Fully fund a Roth IRA
- Save for a home down payment
- Take a trip of a lifetime
Finally, now that you know how to budget you can work your goals into your budget. Take a look at the bigger picture and decrease expenses as necessary to fund your goals. If you can’t cut your budget anymore this may also be the time look at increasing your income via a side hustle or part-time job.
In our example, we had over $4000 left each month. Funding our goals is the perfect place to allocate this money. Thus if we do not give every dollar a job we are prone to overspending or spending just because the money is there. We want each dollar working for us.
Budgeting doesn’t have to be difficult and scary. You can budget on paper, with excel, or an online software. My favorite software is You Need A Budget (YNAB) and before we started using it we struggled with our budget. Using an online program takes a lot of the guesswork out for you and some even link to your bank to make tracking that much easier.
Do you write a budget each month?
Budgeting is telling your money where to go, rather than wonder where it went. You’ll be able to account for each dollar and know that you are spending based on your goals and values. Budgeting is freeing.