Beginners

So, you’ve kept track of all your expenses and income for the last month…now you’re ready to create your budget.

Create Budget Categories – divide each expense into a category such as rent/mortgage, groceries, household goods/toiletries, gas, etc.  Split them up however it works for you.  Some people combine groceries and household goods into one category, since they don’t want to have to split receipts from a store like Walmart.

Don’t Forget about Fun – you don’t want to have fun at the expense of your savings, but if your income allows for it, you also want to factor in some fun money for entertainment or spending money for you and your spouse.  A budget can still be fun .

Account for Every Dollar – every dollar should have a job.  That doesn’t mean that you need to SPEND every dollar, but you need to allocate any extra money to saving for the emergency fund, retirement, college, etc rather than letting it sit in your account.  It will probably get spent if it’s not allocated.

Balance Your Budget – on paper this is the easy one…your expenses and income should equal each other.  However, sometimes it just doesn’t work that way.  Get creative and think of things that you can do to trim the variable expenses like groceries/toiletries, etc or brainstorm ways that you can make extra money.

Follow Your Budget – once you have created your budget, you need to make sure that your spending stays within the category limits.  If you overspend in a category, you need to either spend less on that category the next month or spend less in another category  to make up for it.

Periodically Adjust Your Budget – your needs will probably change over time, so make sure that you reevaluate your budget every once in awhile.  If your child becomes potty trained, you can probably lower your household goods/toiletry budget

What about you?  How do you budget?  Do you have any budgeting tips you’d like to share?

More about Budgeting:

• Track Your Expenses and Income
• Budgeting Tips

Next week, I’ll bring more about the various tools you can use to help you budget.  For more frugal ideas, please visit Life as Mom.

Thanks to Emily @ Bloom for her excellent guest post on budgeting!

Emily Williams likes her husband, her kids, and (believe it or not) her budget.  She also likes to write and does quite a bit of it at her blog, BLOOM.  In this season of resolution making lots of people commit to live on a budget.  Today Emily’s sharing some suggestions to help you stick to that resolution.

In a recent conversation with my husband, a CPA who does financial planning for high net-worth individuals, I asked what advice he would give that, if followed, would make the biggest impact for the most people.  He said simply, “live on an effective budget.”  This advice comes partly from what he sees with his own clients, and partly from our own personal experience.  I agree; we have always been frugal and careful with money, but in the four years that we’ve been diligently living on a budget we have made more accelerated progress toward our goals than ever before.

Here are some tips to help you be more successful and effective in your budgeting:

Remember What Budgeting Is and Is Not:
Budgeting is planning in advance what to do with your money (then tracking it) instead of wondering afterward where it all went.  It’s not just expense-tracking.  It is pro-active and forward-looking.  It’s also not a kill-joy.  People who budget have fun — they just pay for it with cash instead of going into debt for it.

Get it All In:
In order to plan ahead, you’ll need accurate numbers at the outset.  Make sure you’re accounting for all your income and expenses.  Your paychecks may not be your only source – do you have any supplemental income?  Surplus from last month?  As for your expenses, you’ll need to create a system to ensure that each expense is recorded – fix the leaks in your boat.

*A word to the wise: if you’re a budgeting novice, don’t give yourself a miscellaneous category.  Break your categories down as specifically as you can in anticipation of your spending.  And give every dollar a job!

Check Back Often: Especially if you’re new to budgeting, come back to your budget often (weekly) and reconcile.  Get a pulse on your spending.  Eventually, you’ll get to the point where you’ll just sort of develop a sixth sense for your spending and you’ll be able to reconcile less frequently (monthly) and still stay on track.

Anticipate the unexpected: It’s the unexpected expenses that side-swipe the most well-intentioned budgeters.  Anticipate and accumulate for things that typically knock people off their financial feet – car repairs, health related expenses, gifts, job-loss/salary change.  Build funds through gradual savings for each of these things so you’re not scrambling and reaching for your high-interest credit card when crisis hits.

Go With The Flow: If you over spend in a few categories — don’t worry about it.  Make adjustments and start fresh next month.  Don’t get frustrated and give up.  Keep at it.  You may not get it all right the first time, but there will be a trend of improvement.  Discipline breeds discipline.  And eventually you’ll surprise yourself with how accurate you become in your financial management.

Pay Yourself First:
Make your savings allotments before your other outflows.  This is how you build those cushion funds for things like car repairs and health incidents.  This may mean a few lean months in your “restaurant” category.  This may not sound fun, but it brings peace of mind.

Save first.  Make the rest of your budget work with what’s left.  My husband often says, “I’ve never met anyone who regretted having saved so much money.”

Find a tool that works: There are many budgeting programs out there. My husband and I use YNAB and really love it.  We’ve always tried to be careful with our money, but in the four years that we’ve been using YNAB, we argue A LOT less about money, we progress towards our goals, and we don’t worry about money (and that’s not because we don’t think about it).

For more frugal ideas, please visit Life as Mom.

Before you can create a budget, you need to know how much you are spending (your expenses) and how much you are making (your income).

Some categories are easy to determine, such as a fixed rent/mortgage payments or an automobile loan, and some categories can vary greatly from month to month, such as your natural gas bill in the winter vs. the summer, or your grocery/dining out expenses.

For the variable categories, you need to track your expenses over a period of at least 1 month to determine how much to budget for each category going forward.  Not only do you need to keep track of items paid for by check, debit card, or credit card, but you also need to keep receipts for all cash purchases and write down how exactly your cash is spent.

Tracking expenses will help you in two ways – you’ll have a better idea of spending to create a budget, and you may be surprised when you add up all the little discretionary purchases and where your money is going.  If your income is variable, you will also need to track the amount each month.

How to Track Expenses?

• Write it Down on a Piece of Paper – one of the easiest ways to keep track of your expenses is by writing it all down on a piece of paper.
• Track expenses in a spreadsheet
• Use Free Online Software like Mint.com
• Install a Computer Program like Quicken or You Need a Budget – these programs do cost money, but if they work for helping you maintain your budget, they can worth it.

How We Do It

I currently use Microsoft Money (similar to Quicken…but no longer available) to keep track of our expenses.  I have it set up where the program downloads the transactions from the financial institutions and then I code each transaction to a category.  I can also split transactions to several categories.

Do you keep track of your expenses?  What is your method to keep track?  Is it working well to help you create/maintain a budget?

For more frugal ideas, please visit Life as Mom.