Budgeting your expenses by importance.

So what exactly is a budget?  A budget is merely estimating income and expenses for a given period in time.  

Consider it an intentional plan to assign every dollar a responsibility, if you will, where your income minus expenses should equal zero; this is called a zero-based budget.  Before the beginning of each month, take some time to create your budget for the upcoming month.  You may be surprised to discover that you have money that you didn't realize you had.   You may find that you were careless with your spending, which caused you to feel like you were living paycheck to paycheck.   Maybe you didn't realize just how much you were spending in a particular category.  Whatever the case, creating a monthly budget will help you to be intentional about what's important to you.  

What's spurring you into action, what is your why?  Are you trying to get out of debt so that you can build wealth and save for retirement, start saving for kids college, or do you want to be more generous and help charities that are near and dear to your heart?   Whatever your reason, write it down, it will help you to remain focused and not lose sight of your goal.

Before we get started, I have a word of advice.  GIVE YOURSELF GRACE.  Creating a budget takes time to perfect and will likely take you three months before you get the hang of it.  Just stick with it, and keep trying, you will be so glad that you did.

So how do you get started? Here are my four steps to creating a budget.

Steps to Create a Budget

1) Income - Write down your total take-home pay, which should include your spouse's income if you are married. Include all sources of income, full-time jobs, part-time jobs, second jobs, freelance jobs, social security income, include every source of dependable income for the month. 

If your income is irregular, and you don't make the same amount of money each paycheck, start with the lowest amount you previously cleared for an entire pay period. To determine this number, look at your pay stubs over the last year or estimate what you think you will likely net.

2) Expenses - List your anticipated costs for the upcoming month, regular monthly expenses, and irregular expenses that you pay quarterly, semi-annually, or even annually, but remember, you are only focusing on the upcoming month. Now let's break out those expenses by importance by starting with what is known as the "Four Walls." 

The Four Walls are the non-negotiables for basic survival like food, home, transportation, and tithe.

• Food - Groceries
• Home - Mortgage or Rent, Property Taxes, Homeowners/Renters Insurance, HOA dues, and Utilities such as water, light, and gas
• Transportation - Gasoline, Car Maintenance including Tires, Auto Insurance, Tolls, License/Registration, and Car Note(s) if you are trying to get out of debt
• Giving - Tithe/Charities

Then move to expenses that are important/required, such as:

• Health - if health insurance is not something deducted from your paycheck and you pay for it out of your take-home pay, life insurance, copays, deductibles, and prescriptions
• Taxes - if you are self-employed or if you owe back taxes
• Other bills/maintenance - like house phone, cell phone, cable/internet, lawn care, home maintenance for items like a pool, and pest control services
• Personal care - things like clothing, cosmetics, and hair cuts/services
• Education - Tuition, tutoring, and supplies
• Kids - lessons/activities, commission (aka allowance), child support if this is something you pay out to someone else, and camps
• Consumer Debt - student loans, car loans, credit cards, personal loans and the like
• Emergency Savings 
• Retirement - (if not automatically deducted from your pay) 401(k) or IRA contributions
• Pet - expenses such as food, vet appointments, and medications
• Memberships/Subscriptions - Gym memberships and professional Subscriptions and Dues
• Gifts (immediate family) and Holidays - birthdays, graduation, wedding/anniversary, and important holidays that you may need to budget for like Christmas
• Other items - such as Bank fees/charges, tax preparation, or legal expenses if these are items that pertain to you

Finally, round out your budget with "fluff items" such as:

• Entertainment - fun money, books/music, movies/concerts, and restaurants
• Other Gifts and Holiday - birthday, graduation, wedding gifts for others (nonimmediate family and friends), and other holidays that you may spend money on like Easter, 4th of July and the like
• Travel
• Additional savings - you may be saving to buy furniture, a down payment for a house, or an upcoming wedding
• Other items - manicures/pedicures and other charitable donations

While this may seem like an overwhelming task, try it.  Again, you may not catch every single expense when you begin, but over time you will see that it will help you plan rather than wait until the last minute to try and come up with a sum of money for a particular bill.  I like to break out expenses by importance because it allows me to see the first places where I could make cuts easily.

3) Subtract - the total income calculated in step 1 from the total expenses in step 2, and the bottom line should equal zero.  If you don't end up with zero, doublecheck your math.  If you are over, you likely need to take a hard look at every line item to determine where you can cut/adjust.  If on the other hand, you are under, jump for joy, and decide what to do with that money.  You could throw it at debt, or if you are debt-free, save it.

💰Income - 🏠Expenses = $0.00 

4) Track - Now that you have your budget for the month, keep track of what you spend.  Doing so will help keep you accountable, and you will immediately know if you are spending more or less than you anticipated.  To track your progress and see it with ease, you could use an excel spreadsheet, an app/websites such as EveryDollar.com or Mint.com, to name a few or even use notebook paper, to keep up with how your spending compares to your budget. 

 

If you find that budgeting monthly is too difficult, start with a budget for each pay period, weekly, or break the month into two periods. If you budget this way, remember to consider if you need to save money for larger items like rent or insurance from one period to pay in another. There is no wrong or right way to budget, remember a budget keeps you in control of your spending rather than your spending controlling you. Just do what feels right and less overwhelming, and even if it's not perfect, keep trying, I promise you will eventually find your groove.