10 Steps to Starting a Budget

First Things First…. What is a Budget?

A budget is a plan for yourself and/or family for how much money you bring in and how much money you spend.  This is a space where you can create goals and have motivation in place for reaching your goals.  The greatest thing about a budget is you can customize it for whatever works for you!

 

Today, I’m going to share some steps on how to start a budget.

1.  Find a pen and paper or at least have two screens or devices you can look at, trust me it’s easier than going from app to app on your phone.

If you have something to jot this down on, make sure it’s something that won’t get lost. You’ll want to refer back to this as you go through your budget.

2.  Look at your transactions

I know this can be daunting. Sometimes I get the feeling of buyer’s remorse especially if I look back at the transaction and think ‘was that really worth spending that money on that?’  Cost and worth are very different things.

For example, if I am hungover, spending an obnoxious amount of money on a food delivery service has more value to it in that particular moment.  BUT, if I know that an event is coming up where I am going to let loose, I know that I’ll need to save some extra money for the day after.

If you are someone that uses your debit or credit card for every transaction, go login to each account that you use and look at the past 3 months of transaction history. A lot of online banking websites have a feature where you can search your transactions.  This can be helpful to narrow down, for example, how much you spend at your local grocery store.

If you are someone that only uses cash for purchases, think back to how much you spend each time you go to the grocery store. If you cannot remember or keep track of these transactions, I’d try keeping receipts each time you make a purchase.  You could try that for a few weeks or as long as you feel necessary to capture an estimate of your average spending habits.

3.  Categorize the bills

Here’s where I need you to be brutally honest with yourself.  What have you actually spent your money on?  What you are looking at right now is what your spending patterns have been like.

Narrow down the important bills.

I like to think about bills based on how often they happen. What are your bills that are once a year, every 6 months, every month, every week, daily.

What are the bills that are the same amount, same due date, each time?

Examples:

• rent/mortgage
• childcare/daycare
• car payment/transportation
• streaming services or TV (cable or satellite)
• cell phone
• internet
• Car Insurance

What are the bills that happen every month but can be a different amount each time?

Examples:

• Water bill
• Electric bill
• Gas for your car
• Groceries
• Self-Care (gym membership, nail salon, etc…)
• Credit Card bill(s)
• Fun stuff! Don’t leave this out.  It’s like starting a diet, you can’t cut EVERYTHING out and expect to succeed without having some kind of fun throughout the process.

4.  Think about some expenses that seem to happen consistently but creep up on you every year?

Think about how much you’ve spent in the past on these items to get an estimate for the future.

Examples:

• Birthday gifts
• Christmas gifts
• Taxes (personal property tax depending on what state you live in OR federal and state income taxes if you owe money)
• Buying from someone’s kid’s school fundraiser 😊 Girl Scout Cookies have my heart.

5.  Things that inevitably happen but are inconsistent.

Examples:

• Doctor visits, medicine
• Car repair/maintenance
• Home repair if you are a homeowner
• Buying clothes

6.  Customize your budget! What are some expenses that are fun/enjoyable things to you?

Examples: going out to dinner or ordering in, movie theater, concert, going out to the bar, a craft or hobby, going to a sporting event

Most of the time you plan for these events ahead of time so now is a great time to look at your calendar to see what fun things you have coming up.

Estimate a cost for the event. Let’s look at an example of going to a concert. How much are tickets? If the concert is months from now you’ll need to buy the tickets soon, when will you have enough money stashed away to buy those tickets?

Say the concert ticket is $200, after all if your bills are paid for you have $50 leftover. Put that in a ‘ticket savings’ account. Do that for 4 paychecks and then you’ll have the money to buy the ticket.

I know you might be thinking, usually when tickets or concert tour dates are announced it may only be a few days before tickets go on sale.

If you are the type of person that likes going to concerts but don’t have any specifics in mind of who you want to see, just start a ‘ticket savings’ account now and start putting $25 or $50 in that account. That way when a concert comes up that you know you really want to go to, you’ll have the money set aside already.

7. Tally it Up!

Total up all of your expenses. The goal is to find out what your monthly total is.

If you have a bill that you only pay once a year, divide that by 12 to find the monthly amount.

As an example, over the past few years, I’ve paid about $2,000 on our federal income tax return.  I know that bill is due every April.  I’ll need to set aside $167 per month to achieve that goal.  I get paid twice a month so dividing that by 2 means that I need $83.50 each paycheck to achieve that goal.

With those inconsistent bills like buying clothes. I personally am not the best at keeping my wardrobe updated.  I wear my black leggings until they get holes in them, but I’ll buy my kid all the cute clothes I can get my hands on.

If you look at the times that you do buy clothes, whether it’s for yourself or someone else in your household, how much are you typically spending? Total that up and make your best estimate.

8.  Now it’s time to look at how much income you have coming in.

Take a look at your last few paychecks.  Are they about the same amount?  Do you get bonuses or have to estimate your income on the time of year like seasonal work?

Again, the goal here is to get an estimate on what your total average monthly income is. Be sure to look at your ‘Net’ pay, not your ‘Gross’ pay.  If you have direct deposit for your paycheck, you’ll want to look at the amount that get deposited into your checking account.

What’s your spread? No, not butter spread, I’m talking about your money spread. 😊

After tallying up how much money you make each month, subtract out your total amount of bills. Do you have some leftover?

If the amount is negative, now is the time to narrow down what you could be spending less on. Or if all of your bills are absolutely necessary, how can you bring in more income?

10.  Lastly, give yourself a big pat on the back!

If you’ve made it this far, you’ve gotten to take a good look in your financial mirror.

From here, you can start setting goals for yourself and/or your family.

Do you have a goal of saving $1,000 before next spring?  Think about how many months you have until then, divide by 12 and that gives you what you need to save each month in order to achieve that goal.

Do you have a goal of paying off all of your credit card debt by next year? Tally up your credit card debt.

If it seems unattainable, don’t worry I have ideas for you.  Maybe you could consolidate your credit card debt, maybe you could sell something and put a chunk toward the debt.  Credit cards are a whole other beast that I definitely plan to write about to help anyone who is ready for it.

In summary, budgeting can be difficult and time consuming.  Your budget is like a living breathing thing, it’s going to evolve over time and need to be adjusted as your life changes.

XOXO, The Girl in the Green Sweater