For those who don’t have a budget, it can seem really overwhelming and daunting to try and start one from scratch. Where do you start? How much work will it take? Etc. The reality is, it really doesn’t have to be that complicated if you break it down into manageable steps.
First you really just have to get a handle of how much you spend now on ALL of your expenses (bills, debts, etc).
If you haven’t already, please head over to my previous post on Why A Budget Gives You Freedom, Not Limitations.
Here are my 3 “simple” steps to start the budget process:
STEP 1 – Go through recent bank statements and write down all of your spending into the following four categories:
Monthly Bills- Things you expect to or have to pay on a monthly basis. It’s what you owe to service providers and they are you usually set in price. Some examples are; Rent/Mortgage, Cell Phone Bill, Cable Bill.
Everyday Expenses- Things that you pay on an ongoing basis throughout the month. It may not be a fixed amount but you know about how much you will spend in these categories throughout the month. They include things like, Groceries, Fuel & Household Goods.
Rainy Day Funds/Sinking Funds- Things you budget for now but plan to pay for the future. For example, if you pay your car insurance every 6 months, you would set aside money every month to pay for that expense when the time comes. These also include putting money away for predictable emergencies, such as car repairs.
Savings Goals category- This should include things you are saving for such as your Emergency Fund, Car Replacement Fund, Vacation Fund, etc.
Here is a list of my budget categories
- Natural Gas/Propane/Oil national grid
- EZ Pass
- Gymboree Classes
- Investment Condo Fees
- Childcare Expenses
- Household Goods
- Child Related Items (diapers, wipes, etc)
- Misc* (My Misc category is a catch all line item for small things that come up during the month that I don’t want to make a major budget line item such as parking tickets or parking meters.)
Rainy Day/Sinking Funds:
- Water Bill
- Car Insurance
- Husband’s Blow Money
- My Blow Money
- Car Repairs
- Home Maintenance
- Birthdays, Christmas & Holidays Outings & Gifts
- Gifts For Others
- Bonus & Gifts for Childcare Provider
- Annual Credit Card Fee
- Additional Mortgage Principal Payment
- Emergency Funds
- Roth IRA
- 529 Plans
- Index Investing
- Dental Work
- Car Replacement
- Entertainment and Fun
Step 2 – Write down all of your debt balances, their interest rates and the payments you have been making (essentially everything you owe to someone else except your mortgage). This includes credit cards, student loans, car notes, home equity lines of credit.
Step 3 – Allocate your income to each budget line item based on what you have spent on average over the past few months (from step 1 & step 2)
What do you find? Are you in the red after paying all of your bills? Or is there money left over at the end of the month.
What you want to see is:
Income -Expenses (all line items in your budget from Step 1 and what you pay creditors from Step 2) = 0 or a positive number
In some cases it will be:
Income-Expense= negative number
If it comes out to be negative, then that may explain why your credit card balances seem to creep up, why you never have money left in your accounts or why you can’t seem to accomplish your financial goals by the end of each month.
If its 0 or a positive number, that’s great. But I bet with more budget work you can begin to see that number increase.
The thing is, in order to understand where your money is going and how its working or not working for you, you need to see the actual numbers in front of your face. When things are written down, it makes it not only easier to understand but more real. There is no denying the truth if it’s in your face.
So if you are new to the budgeting thing, try the 3 steps above and try it TODAY. Don’t put it off; make it a priority in your life. Once you start down this road of money enlightenment, I promise you won’t look back.
After you have gathered all of the information, you will see if your spending is in alignment with your goals.
Stay tuned to my next blog post on how to curtail your overspending, pay off debt and start attacking your goals by using a budget. For those who are seasoned budgeters, how do you separate your budget categories?