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Monday, December 16, 2013

How to Make a Budget

If you have question about money, feel free to ask. I'll feature it on Money Question Monday.

Some people don't want to have a budget because they think it would take away their freedom to spend. But if you are married and having money disagreements about how much he spent/she spent on video games/clothes, I think you will find a budget to be totally freeing. If you have both agreed on an amount for your personal spending money ahead of time, and especially if it is in cash with the envelope system, you will feel a freedom to spend all of that cash, without reprisal, at whatever store you choose.

My accordion-style envelope system. We haven't spent all of our money yet!
In order to set up a budget spread sheet, you can go here, and look for monthly budget, "click here to start". Or you can create your own spread sheet.

If you can, set up your utilities where they will charge you the same amount each month by taking the average of what you use, spread over a year. They call it the "budget plan" where I live. It's just more convenient if you know that you are always going to pay the same amount.

Gather up all of your bills, and a few months of bank statements (or credit card statements, if you use those awful things).

I'm going to write this with the premise that you want to cut back on your spending in order to pay off debt, save up to buy something big, start putting money away for retirement, or start saving for your kid's college. Maybe you're already doing all that and you don't need to cut back on anything.

Put your family's monthly income at the top of your spreadsheet.

If you believe in tithing, (and I do) put in 10% of your pretax paycheck to your church first.  

Fill in all of your monthly bills second. This will include things like a house payment, car payment, electric, gas, water, cell phone, internet, TV, insurance payments, gym membership, student loan minimum payments, credit card minimum payments, and other loan minimum payments.

Can you cut back on any of those bills? Have you shopped around to get the cheapest internet? Can you cut back on your tv bill by using netflix streaming at $10 a month, or even free tv with the antenna? Do you have the cheapest cell phone that is practical for you? Have you shopped your insurance? Could you take up jogging instead of paying a gym membership? If you are renting, could you find a cheaper place?

Next, assuming you aren't using a cash system, look through your statements to see how much you are spending on gas, and figure out an average for each month. Budget a little more than the average for gas. This is an area that is hard to plan exactly, and I want you to have a little wiggle room, since you are not exactly going to stop driving to work or other places if you go over your gas budget.

Look your statements again to see how much you usually spend in restaurants. When you total up this number, you might just possibly be shocked. Is that how much money you want to spend on something that doesn't last? Food is much cheaper at the grocery store. Talk to your spouse about how much you want to eat out, and what a good number for that is. This is a good one for your cash envelopes.

Figure out how much you are spending on groceries. A good number to start with is $150 per person, per month. It might be more for you if you're single, or less if you have tiny children who won't even eat the small amount of food you give them. This is also a good one to use cash envelopes for.

A difficult one to figure out is personal spending money. This is what you would use to buy yourself a coffee, some shoes, crafting supplies, video games, music, clothes, a doodad for the mantle, or perhaps a saxophone that you found at a yard sale. My husband often uses his personal money for us when we run out of restaurant money. I guess he doesn't have too much that he wants to buy. I, on the other hand, almost always have a purchase in mind that is just waiting for ATM day. What do your husbands like to buy? 

You and your husband do not even have to have the same amount of personal money, if that is what you agree that you both want to spend. Maybe he wants to save up for a four wheeler. He can put most of his personal money in a savings account instead of in cash. Figure out how much you have been spending. Most people will be able to cut this number back. When you are on a budget, you will learn to be more careful with what you buy. You will remember to check and make sure those jeans don't have the kind of pockets that you hate. You won't buy those shoes unless they are the most comfortable shoes possible. You will check online reviews to make sure you aren't buying something of low quality. You will only buy things that you really love. 

When you don't buy things very often, each purchase becomes more special, more enjoyable, and more of a treat. When you limit your shopping, I think you will enjoy it a lot more.

Add into your budget money for buying birthday gifts, maybe some home improvement money, date night/babysitting money, clothes money for the kids. Maybe you have some pets you need to budget some money for, or medication, or hair cuts. Look through your accounts and see if there is anything you need to budget for.

How much money is left over? Put that toward Dave Ramsey's baby steps:

 1. $1,000 to start an emergency fund.
2. Pay off all debt except your house, starting with the smallest one.
3. Save up 3 to 6 months of expenses in saving.
4. Start saving 15% for retirement.
5. Start saving for kid's college fund.
6. Pay off your house early.
7. Build wealth and give.

If you want to save up money for a car, vacation, or house down-payment, you could probably start that after baby step 2. If you have student loans that will take years to pay off and your car is on its last legs, you might need to start saving for that before all of your debt is paid off. But is your car really on its last legs? Cars are made a lot better than they used to be. If you are still paying off debt, your car will probably make it to 200,000 miles. Or more. If your car is ten years old, don't worry, it's still a baby. When you are doing really well, you will have enough money that you will no longer have to drive a car with 200,000 miles on it. In my financial counseling, I have found that cars are the number one thing that hold people back from doing well. Don't let car envy get the best of you. Be strong, my friend.

Happy Budgeting.


  1. Thanks Charlotte for sharing this interesting post about making budget. There is one big advantage of having a thoroughly revised budget is that you can prioritize your kinds of expenditures. You will understand the better options to spend the money on rather than wasting it. I found your article very easy to understand and follow. Keep writing.

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  2. I find budget making task pretty herculean. You cannot be sure how much money you're gonna need. However, people still have some basic idea about saving money either on tour, shopping, etc.

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