Budget Basics
Okay so you want to learn to budget. That’s great! A budget is the blueprint for your month with money. If you have never had a budget before it can seem overwhelming, but don’t fear we are going to start at the basics. The main parts of the budget are income and expenses. There are two types of income, regular and irregular. Regular income is when you get about the same amount every payday and you can count on it. Irregular income is when the amount you get fluctuates (like if you are self employed, get paid on commission, or work odd jobs). Expenses are all the things that you spend money on. There are different kinds of budgets, but the one I am going to teach you about is called a zero-based budget. Now that you understand that let’s get started with 3 steps.
Step 1: Write out all incoming money. This would include paychecks, child support, social security, gifts, etc. If your income is irregular put in your lowest expected amount (look at real data what is the lowest amount you have brought in over the last year and use that number, that way we can plan for the hardest month).
Step 2: Make a list of all your outgoing money (expenses). I like to suggest printing your bank statements for the last three months and reviewing them. Often people don’t remember all the places their money goes in a month until you look at the real facts. If it helps take a few highlighters and use a different color for different categories. This will help you place those expenses in the right spots in your budget. Expenses also come in two kinds, fixed and variable. Fixed expenses are things that don’t change, like the monthly subscription or the mortgage. Variable expenses are things that vary month to month like gas and groceries.
Categories:
Giving
tithing
charitable giving
gifts
Saving
emergency fund
retirement
sinking funds for large purchases
*Food, Utilities, Housing, and Transportation are things you pay for first. These cover your basic needs. Without money in these categories it makes it hard to focus on anything else. Please pay for these four categories as a NEED, as in you need these to survive.
Food
groceries
restaurants
Utilities
electricity
water & sewer
natural gas/propane/fuel oil
garbage services
internet
phone
Housing
mortgage/rent
property taxes
HOA
home maintenance
household items
Transportation
gas or public transit
vehicle maintenance
Insurance
health
auto
homeowners/renters
life
Health
medication
appointment copays
gym membership
personal trainer/classes
Personal
clothing
personal care
fun money
kids
childcare
school expenses
sports
toys/gifts
Pets
food
medication
vet visits
grooming and boarding
Entertainment
event tickets
subscriptions
streaming services
travel
Debt
car payment
student loan
credit cards
personal loans
recreational vehicle loans
Taxes
Holiday/special occasion
Miscellaneous
Alright that should get you started. You might find that there are other things that you need to add to this list, either as a category or just an item under a category. Your life is uniquely yours and your budget should reflect that. I have an entire budget line item just for camping, because that is what we love to do. So I make sure to plan for that expense. Also my budget changes each month, and yours should too! I don’t budget money in the camping line in the winter, because I don’t spend money doing that. I reallocate that money to other categories in the winter, like the propane bill that I don’t pay all summer, but need to cover in winter.
Take Note:
Two important categories: Personal & Misc.
If you live with a partner or child everyone gets their own line item. You and your partner should have fun money and enough to spend on small purchases that don’t require a big discussion about what the money is being spent on. You agree on the amount ahead of time, write it in the budget and then you each have freedom to spend as you want. This also avoids busting the budget and overspending because you have the money already set in the budget to spend.
Kids! They are expensive. I recommend not letting your kid’s expenses come out of your personal line. Budget for the toys, clothes, play-dates, daycare and sports. You can make kids its own category and have the sub-categories, but in reality what you are spending on your kid is personal spending for that child. Each kid should get their own line in the budget just like you and your partner.
Miscellaneous is the best category ever! Or at least that is my opinion. Things happen, stuff comes up, your kids forget to tell you about something, stuff breaks, and you didn’t budget for any of it. That is what this category is for. Don’t let unexpected things wreck your budget and make you panic. Just put the expense in the misc category and move on. However, if you see a pattern month after month about somethings falling here it’s time to give them a line in the budget. For example, your kid starts school and gets invited to a party, but you did not budget for the gift. No problem, misc category and move on. Crisis averted and new friend made. Then you realize your kid is friends with the whole class and you buy a gift almost every month, sometimes multiple times a month. It’s time to add a gift category and plan for that expense. Decide ahead of time what you are willing to spend a month on birthday party gifts.
Step 3: Subtract your expenses from your income. With zero based budgeting that number should equal zero.
Take Note:
Zero based budgeting does not mean zero $ in your account. You should leave a buffer so you don’t overdraw yourself. Decide on that buffer number what makes you comfortable ($100-300 in there). Zero based budgeting means that all your money has a purpose and it is serving you by doing the job you assigned to it. When you are starting if you don’t have a buffer, budget your buffer in. $100 budget line item - buffer under savings. Then next month remove the buffer line item, but keep the money there so you have a cushion in your account. Remember you are in control of where every single dollar goes and what you want it to do for you. This should help you build confidence in your spending and saving.
If you need a starter form here is a free download of a budgeting form.
Tiffany
