Creating a Budget ... where to start?

[KerriMc]

Hello

DH and I have been talking (and talking and talking ... ) about setting up a budget, but have yet to do so. We have been watching ourselves more closely this past month, but we still don't actually budget! DH isn't as into wanting to do this as I am. I do all the bill paying, etc. and he just figures all is well and ok. I worry about money more than he does though.

So anyways, where do we start? I dont' really want to buy a program for the computer. I tried that once before (a LONG time ago) and didn't like it then, but maybe they are better? I know we need to make a list of all we owe and all we have, etc ... but how do you decide how to break it all down? We have a show here in Canada called "Till Debt Do Us Part" and the woman on the show has them use only cash, no debit or credit cards. They have all these mason jars lined up with set amounts of cash for specific things. A neat idea (although I don't know where I would store this), but I don't know how to divide everything and assign a dollar amount to it.

For example, under what expense do you put items like toilet paper, paper towels, kleenex, dh one case of beer every pay day , cleaning supplies, shampoo, feminine hygiene stuff, toothpaste, etc? Are some of these under groceries or do you have a separate one like household supplies or personal supplies? Beer ... ummm ... entertainment?? I guess what I want to know is how you decide where to divide it all up? What if you have some left over at the end of each pay period or week or however you divide the time up ... do you just carry it over into the next period or do you put it away somewhere?

I'm sorry ... so many questions, but I'm really feeling like I need to get us in some kind of "order". I'm tired of just using my debit card and then finding things tight until payday. We just finished our basement, so we do need to work on paying this down, but where to begin. Any suggestions or ideas would really be appreciated

Thank you so much ....
Kerri

 

[cseca]

Here's how I did mine with excel:
1. I write down all debts, monthly payments (utilities, cell phone, tivo, cable, dsl, etc.), yearly payments (if you have any - such as AAA, driver's license, insurances, etc.).
2. Then you figure out take home income.
3. Then you make a chart per month, or biweekly, or quarterly. Which ever way make sense to you. I do mine by month even if my paycheck is biweekly.
4. Then you list all your monthly expenses in the chart.
5. The yearly ones are trickier. You can either put away some money in a different acct every month until you have to pay the bill or you could just pay it as an extra expense in that month.
6. figure out the difference between your income and your expenses.
7. Take some amt for savings
8. And now you have your monthly fun money which you have to divide into categories. Mine are groceries (including paper towel, etc.), eating out, spending money (shoes, clothes, cds, etc.).
voila! You have a budget.
I'm sure there are softwares out there to make this easier, but I like my personal excel spreadsheet...

Keep in mind that it might take you a couple months to figure out your current spending habit and a couple months to adjust to the new budget.
But once you get a hang of it, to find yourself within or below budget at the end of the month is a great feeling!

 

[chop456]

Great post! I have needed to get a budget started for a LONG time. I also take care of bills, etc and would like to have an actual budget to follow. Any advice is appreciated!

 

[punkin]

I can't seem to actually do a budget. I have our savings automatically deducted before I start paying bills for the month. Whatever is left over we live on. If we go over one month and need to dip into savings, I tighten our belts the next month and spend a lot less on discressionary expenses. That's all.

 

[sparklemint]

I went through the process of creating a budget for the first time a few months ago so I'll share what I did. First, I sat down and made a list of all the things we spend money on in the sparklemint household; it was easy for the monthly bills but I had to think a bit to remember the occasional items (like the magazine subscriptions or annual vehicle inspections). Here's my list:

Taxes - federal and state (my husband is self-employed so we have to set aside money each month)
Retirement - SEP-IRA and Roth IRA
Credit Union fees (only $1 per month but I was trying to get everything)
Mortgage including escrow and extra principal
Home owners association dues
Home supplies (this is for things like paper towels, shampoo, etc.)
Utilities - natural gas, electric, water, yard waste, phone, cell phones, cable, internet
Vehicle - registration, taxes, inspections, maintenance, gasoline, replacement (savings for new car)
Insurance - health, life, car
Food - groceries, take out
Medical expenses
Computer (includes savings for eventual replacement)
Charity
Vacation
Entertainment
Emergency fund
Other

We don't have kids or pets so if you do, you may have additional items for daycare, kids activities, or vet expenses. Also, I don't have a separate category for clothing or shoes. That would come out of "Other" for us.

Next I went through my credit card statements, bills, and checkbook for the past year and came up with monthly estimates for each category. For example, I looked at my car insurance bill and since it's paid six months at a time, I just divided the total by 6 and that's my budget for car insurance each month. For monthly bills that fluctuate (like natural gas and electric) I averaged as many months as I had.

Once I had estimates for outgoing money, I estimated our monthly income and adjusted the outgoing money as needed. Anything left over each month goes into the "Other" category. I now keep track of our spending in each category during the month. So after going to the grocery store, I'll add the total to the Food category. I don't take the extra step of using envelopes or all cash; I just remember to keep my receipts each day and write down the totals.

One thing to be aware of is that you may be starting in the middle of the cycle for your non-monthly bills. For example, if your car insurance is due in July and you're starting in April you'll either need to increase your monthly budget to make up for the months you've missed or put aside money to start with.

Now, you may be thinking that this seems like a lot of work but really, once you've got things set up it isn't bad. Personally, I feel more comfortable when I can see that I'm meeting all of my savings goals and so I don't feel guilty buying some DVDs or going out for dinner because I know I've got it covered. It's also handy for me to have things split up on paper since I only have one savings account; by looking at my budget spreadsheet, I can see how much money is saved up for vacations and not worry about spending money allocated for other uses.

 

[disneysteve]

The very first thing you need to do is write down every penny you spend on absolutely anything for at least a full month. At the end of the month, sit down and divide up all of your spending into 2 columns: wants and needs. And you need to be brutally honest and detailed here. Some bills might need to be split between the columns. Having a telephone is a need. Having caller ID, voice messaging and call waiting are wants. Buying food is a need but buying Kellogg's cereal instead of generic store brand cereal is a want. Also, as sparklemint said, don't forget bills that don't come monthly, like taxes, magazine subscriptions, club memberships, car registration, etc. Take 1/12 of those amounts for your monthly breakdown.

Once you've made the list, take a good hard look at what is in the wants column that could be eliminated or gotten cheaper and start trimming those items from your spending. That will free up money for savings and debt reduction (if needed). Personally, that's about as far as I would go with budgeting. I'm not a fan of following any kind of strict budget except for the savings part. As long as you are saving regularly, it really doesn't matter what you spend the remaining money on as long as you are living within your means and not taking on new debt to support yourself.

 

[newman7501]

There has been some great advice for doing budgets on this thread. We started doing a budget about four years. We do our budget sheets week to week but project five weeks ahead. It is very hard to describe so I won't even attempt to do it on the board but it is very easy to do. We have estimate and actual columns and are filling in the sheet weekly so we are constantly tracking our spending. A big must is to remember to budget for gifts, they creep up on you. Another thing is if you slip don't be too hard on yourself. You will be amazed at how much they help. After 4 years we went from 40,000 in credit card debt to 0.00. We have even found ways to save beyond our 401k. Good luck and stick with it.

 

[pearlieq]

I can't seem to actually do a budget. I have our savings automatically deducted before I start paying bills for the month. Whatever is left over we live on. If we go over one month and need to dip into savings, I tighten our belts the next month and spend a lot less on discressionary expenses. That's all.

This can be a really great system for someone who doesn't like formal budgets. You would just need to figure out how much you need to save in total (including retirement, emergency fund, long term savings (for a big house project, for example) and short term savings (for a vacation, or a big medical bill you know is coming up, and for "cushion") and deduct that all out of your paycheck - automatically if possible.

Whatever's left over is your money to live on--when it's gone there's no more money until next pay day. This really is a great system for folks who want something easy.

Now, if you're a total wonk like me, I have a fairly complicated multi-sheet Excel document to manage everything, but I like it!

For the budget part, I put our net pay at the top, then list out all of our expenses underneath, divided by paycheck. I usually roll all paper goods/hygiene items under groceries, and we don't drink, but I would just put the beer in there as well.

I also take a certain amount out every month to cover annual payments such as DVC dues, car insurance, clothing, gifts/holidays, auto repair, home repair, and pet care. That helps make sure I always have a cushion to cover those expenses.

Good luck to you!

 

[spiceycat]

write down every penny you spend for the following month.... every check, every Credit card purchase, every debit card purchase, every dine you spend.

you can't stop your excess spending until you know where all the money is going....

then I put my income first (always help to have money coming in first to me)

then I list everything

grocery for me - is everything I buy in the grocery store including cleaning supplies (when I buy them at grocery store - most I buy these things at Walmart, Sam's, Dollar store).

my budget
loans (first) - these will include mortgage, personal, 401-K, business, etc. any and all loans

credit card - any and all of your cc

food/grocery

cash - I allow myself some cash for daily expenses that I won't want to record - the coke at work, etc

insurance - car, home, life, business, medical - if you don't have both car and home - get it!!! - you never know when a fire, storm or anything might happen - so get renter insurance if you don't own your home

medical expenses - I have insurance - but I still need to pay the deductible, this also includes my drug expense

Vet bills

Cat food - I buy the cat food at pet store - where it is actually cheaper than the grocery stores. also sometimes at Walmart - just depends upon their pricing.

home improvement items - if you need to purchase a new oven, roof, anything to do with the house - budget for it here.

car expenses - everything for the car except gas.... new tires, oil changes, when you need a replacement

gas for car

power for the house

gas for the house

water

phone - land line

cell phone

computer

clothes - if you sew the material and patterns

TV - including cable or how ever you receive it.


there was a time when I bargin shopped. but with the price of gas it is getting to expense to go from one place to another... but that is one of the nice things about the internet. You can value shop here....especially if you are buying a big item....but it is good for smaller one too.

I like to compare prices to
www.overstock.com

Walmart is not always the best buy - look before you buy... the Dollar stores too - they aren't always the best buy...

don't get upset if you find that you are living beyond your means. you can cut back... organize your shopping so you can do more with less gas and time. maybe stop having a cable TV (I had too - that $50 per month makes a big difference).

shop around for the best buys in cell phones, internet connection (most people don't need the high speed cables, they simply want one), insurance.

you might be surprised what you can save.... being a budget is hard work - but it is generally worth it!!!!

 

[ldb1030]

There has been some great advice for doing budgets on this thread. We started doing a budget about four years. We do our budget sheets week to week but project five weeks ahead. It is very hard to describe so I won't even attempt to do it on the board but it is very easy to do. We have estimate and actual columns and are filling in the sheet weekly so we are constantly tracking our spending. A big must is to remember to budget for gifts, they creep up on you. Another thing is if you slip don't be too hard on yourself. You will be amazed at how much they help. After 4 years we went from 40,000 in credit card debt to 0.00. We have even found ways to save beyond our 401k. Good luck and stick with it.

WOW! I would love to hear more about how you did this! Congrats to you!!

 

[nicknamy1996]

OK it's a long post, but hopefully it helps someone out!

I like the idea of writing down everything to see where your money is going... never done it, but if would be interesting to see. I think you could set up a budget to find out how much you have to spend and then (even after a few months) if you are not making budget then write down and analyze every penny.

Most people don't need to buy software for it. A simple Excel (or any spreadsheet) program will do. I think most computers still come with spreadsheet software? Heck! A pen a paper will do!

A good "starter" budget could be something like this...

List your pay and spouses pay one one side (calculate it to the month)

Carry that amount over to the top of another column and start listing your "debits" with a running total.

Ex.

On top or left you have:

INCOME (TAKE HOME PAY)

Pay $900.00/2 weeks
Spouse $350/week.

Total (900x26/12)+(350x52/12) $3460

So on the other side you'd have

EXPENSE.........../MO........BALANCE
Opening Bal.....................$3460
Mortgage..........$1000......$2460
Car Loan...........$300.......$2160
School Loan........$150......$2010
Elec...................$90........$1920
Gas...................$85.........$1835
Sewer................$15.........$1820 (paid quarterly so $45/3)
Water ............... etc..........etc...
Cell Phone
Phone
Internet
Gym

I guess for the "starter" budget I'd put everything in as a "Monthly Expense" Take your annual expenses and divide them by 12, etc... (later you can do a true monthly budget)

Auto Insurance.....$130........$1100.... ( $780 every 6 months)
Assoc. Dues.........$16.25.......$1084 ...... ($195/year)

When you are all done with every bill you can think of take the "remaining balance" and multiply it by 12 months then divide by 52 weeks and you will get how much you have to spend each week. $250/week in this example.

Now you know how much you CAN spend each week and then you can track every penny and see where your $250/week is going.... That's where you can do another "BUDGET" with another spreadsheet of course. Love the spreadsheets!

This is just a great way to figure out where you are. It's not really for a week to week (or even a month to month) budget but rather a "starter" like I said. The great thing about doing it in a spreadsheets is that you let the computer do all the math for you and you can see just by changing a "monthly" expense your weekly spending money increases, etc...


OK you'd think I was done.... yea right!

Do "budget billing" for your gas and electric if your providers offer it. (auto-pay is great too, but get the budget running smooth first)

Now for my real budget I (personally) would do a direct deposit or monthly deposit straight to savings for any annual or 6 mo. expenses in to a savings account and then another in to "emergency savings(or vacation, christmas,ect...)" account PRE"INCOME" on my spreadsheet. You could then have a "monthly" budget and see how your recurring bills affect your spending money. And be able to spend your $250/week while you have a little cash building up if you have to dip in to it.

Sorry if I made it confusing I've been through many models of budget sheets since I took over the expenses from my wife, but I managed to pay off 14K in credit card debt, never bounce a check and get my family to WDW 3 times without ever running up a balance on a credit card... we won't mention how she was doing! but her checks seemed to do this alot

 

[dvcgirl]

I can't seem to actually do a budget. I have our savings automatically deducted before I start paying bills for the month. Whatever is left over we live on. If we go over one month and need to dip into savings, I tighten our belts the next month and spend a lot less on discressionary expenses. That's all.

IMO, this is how great savings habits start. This is how we live, savings goals are met first, and then we budget for everything else out of what is left. That way our monthly budget doesn't get out of control and never has to life up to a certain lifestyle, the lifestyle must fit within the monthly budget.

As for the monthly budget itself, we do have one, but once it is set, the only two numbers I keep an eye on are groceries which can vary a bit here and there...and then discretionary spending. Over time I've sort of lumped those two things together...and so for us, toilet paper, eating out, and milk are all in the same category . Longer term bills like property taxes, auto insurance, HOA fees and things like that come out of checking monthly and are put into a higher interest account to make what they can. If we have a big trip or a pricier home project in mind, that comes out of discretionary spending on a monthly basis. That's what works for us.

 

[punkin]

so for us, toilet paper, eating out, and milk are all in the same category .

Well that's exactly right. Toilet paper and milk will get bought no matter what, but if the prices for TP and milk (and gas) go up, then the eating out has to go down in order to compensate.

If I want to buy my DD a video game (which is not budgeted) I have to reduce clothes, groceries and going out. There is really very little I can do about fixed expenses like tuition, utilitites and mortgage (even though the utilities keep going up all the time)

 

[corie161]

I also would like to stick to a budget. I'm having a hard time coming up with one because my DH is self employed, get's paid once a month and it varies so much that I don't know from month to month what I can count on for income. Any tips would be greatly appreciated.

 

[Donnaly66]

If you want to start a real budget and have trouble with where to start, visit a web site called Daveramsey (dot com). He is the author of the book, The Total Money Makeover.

My husband and I started this last year and it WORKS! And we were the WORST spenders and budget-avoiders. It saved our marriage. This is a great place to get started on getting rid of your debt. You may not do all the things he suggests, but you'll get the idea.

 

[Chicago526]

Honestly, the key is to make sure your income is more or the same as your "out-go", or spending. How you lable the catagories or if you track it weekly, monthly, or quarterly, if you use a budget program, spreadsheet, or pen and paper, all of that doesn't really matter so much. As long as whatever system you use works and makes sence for YOU, is all that matters.

Since most people pay bills monthly, most people budget monthly and that's what I do to, even though I get paid bi-weekly and DH gets paid weekly. I track mine in an Excel spreadsheet. I list everything I get a monthly bill for, then gasoline, food, savings, and cash (spending money). At the bottom I have an over/under line. It should read either 0 or a possitive number (right now it's $7). If it's zero or a positive number, then I'm spending (and I include "savings" as spending) all of my paycheck or have some left over. If it's a negitive number, then I'm over budget and I need to cut somewhere (usually spending money). To figure out what I should be saving, I add up all my yearly bills (vet, clothes, AAA membership, car tags, vacation, car and house repairs/maintenance, some of these things you'll have to estimate) and divide by 12. That's the minimum I have to save each month, I try to save more than that because A) there is always an unexpected expense and B) I'm also trying to increase our emergency savings. Then those yearly items get paid out of savings. Eventually we'll have two savings accounts, one short term for the yearly items and one long term, which will be for true emergencies like medical issues, job layoff or whatever.

Anyway, that's just what we do. But at the end of the day, anything you do to track what your spend and where you spend it and how you plan on paying for it is a good thing!

Edited to add: Oh, and I count anything that gets used up as "groceries", so all houshold cleaning products, personal hygene, pet food/treats, soda/beer, paper products, anything that is considered a "consumable" and I can shop for at a grocery store, Target or Costco is just lumped in under "groceries".

 

[pearlieq]

I also would like to stick to a budget. I'm having a hard time coming up with one because my DH is self employed, get's paid once a month and it varies so much that I don't know from month to month what I can count on for income. Any tips would be greatly appreciated.

This is a bit of a challenge, but there are a couple of ways to work with it.

1.) You can go over the last year or two, and try to determine an average of his income, and use that as your income figure each month. You would then just need to transfer excess $ to savings during the "fat" months to cover the "lean" months.

2.) You can also go back over your budget and find the least he ever made per month and use it as your income figure. This gives you the security of knowing that your budget is sized to fit the leanest of times and that any extra money can be saved/invested/used for fun.

Good luck!

 

[dvcgirl]

Well that's exactly right. Toilet paper and milk will get bought no matter what, but if the prices for TP and milk (and gas) go up, then the eating out has to go down in order to compensate.

If I want to buy my DD a video game (which is not budgeted) I have to reduce clothes, groceries and going out. There is really very little I can do about fixed expenses like tuition, utilitites and mortgage (even though the utilities keep going up all the time)

Same thing goes if an unexpected repair bill hits. We just had some unexpected repair work hit us to the tune of a few hundred dollars. It has to come from somewhere, and so for us it comes from our discretionary spending money. For others, that may come out of the emergency fund, but then the emergency fund needs to be replenished.

You are right though, the fixed expenses are what they are. Not much we do to control them. Of course, one has to be able to afford the *big* fixed expenses...like the house, and possibly the car. But as long as those are all good, then if people have budgeting issues creating a monthly deficit, it's in the discretionary spending. It's so easy to lose track. A book from Amazon here, a new pair of sneakers there, a BD gift over here....and bam...you're over budget. And so if you don't know what you can comfortably spend to begin with, well, this can lead to big problems down the road.

I have an aunt like this. She just spends without giving any thought to a budget. Of course she has her wants and needs all mixed up as well so she's just a mess in general. But I can't personally understand how it's possible to operate without a budget of some kind. It doesn't need to be very detailed at all once you know what is coming in and what's going out. But without one, it's really, really difficult to save and get ahead. And it's really easy to rack up credit card debt and get into trouble.

 

[jeancbpugh]

Good advice in this string.

To start with, we listed what we were spending. Then we divided into needs and wants.

Here is some of the ways money goes:
Auto - car washes 6 @ $6
Auto - Commuting - tolls
Auto - gas
Auto - plate renewal (2 vehicles)
Auto - purchase $25,000 /every 6 years - save a certain amount each year
Auto - repairs
Auto - tires
Birthday Parties
Boat registration
Christmas (cards, presents, entertain)
Clothing - haircuts
Clothing, DH
Clothing, drycleaning & shirts
Clothing, kids
Clothing, me
Clothing, shoes boys
Donations - Alumni
Extracurricular - swim / tennis lessons
Extracurricular - swim team
Extracurricular - kids- soccer fees
Extracurricular - kids - scouts reg & banquet
Extracurricular - scout uniforms & equipment
Extracurricular - Sports Equipment
Food
Health - Copays
Health - uncovered medical
Health Insurance - medical, dental, vision
House - Cable TV
House - computer upgrades
House - garden mulch & chemicals
House - Homeowners Association
House - interior maintenance items (Home Depot runs add up!)
House - Lawn cut ($25/week x 20)
House - Mortgage
House - Natural Gas (heat)
House - paint ext $2700 every 8 years
House - Property Taxes
House - Safety Deposit Box
House - Water, Waste Water, Electricity
House - Windows cleaned (1 x year)
Insurance - Auto
Insurance - Homeowners
Insurance - Personal Liability
Luxuries - camera equipment
Luxuries - museum admission & parking
Luxuries - restaurants
Luxuries - skiing, equipment
Luxuries - vacations
Magazine Subscriptions
Membership - AAA
Membership - club
Membership - club
Membership - PTA
Membership - YMCA
Office Supplies
Savings - colleges
Savings - retirement
School - band camp
School - book fair & book orders
School - fees (includes milk)
School - field trip fees
School - instrument rental
School - photos & yearbook
School - PTA fundraiser spirit wear
School - req'd gym uniform
School - supplies
Telecomm - cellphones (2)
Telecomm - House line
Telecomm - internet access

 

[disneysteve]

But I can't personally understand how it's possible to operate without a budget of some kind. It doesn't need to be very detailed at all once you know what is coming in and what's going out. But without one, it's really, really difficult to save and get ahead.

I agree. I think the key to a succesful budget is simplicity. I read so many budgeting suggestions that just seem way too cumbersome. I think most budgets fail for the same reason that most diets fail. They are too complicated and too restrictive.

Our budget is simple. 17% of my gross pay goes to savings (split between retirement, non-retirement and college savings). 75% of DW's gross goes to savings. Everything that is left is what we live on. We do not have any budget for specific areas of spending like groceries or entertainment or vacation. So basically 2 categories - spending and saving. I don't have a clue what we spend on food or clothing. For some reason, basically curiousity and so I can discuss it here, I do track what we spend on vacations.