Photo by Jeff Keen
The theme this month is Money.
Budgets get a bad name. Most people associate them with being broke or having a spending problem. But budgets are really just coordinating your resources with your expenses. And if you want to design your own lifestyle, you have to get control of your money.
So, let’s do it!
How to Set Up a Budget
- List all your net (take-home) income sources for the year and divide by 12 to get your monthly income.
- List all your fixed expenses (mortgage, car payment, life insurance, etc.). Don’t forget about the things you only pay once or twice a year, like property taxes (divide to get the monthly expense).
- Using past receipts or your bank register, calculate your monthly expenses for variable costs like groceries, dining out, vet bills, car maintenance. Divide the annual amount of each by 12 to get your monthly expense.
- Put all your income and expenses on a budget spreadsheet. This is the budget form I started with and you are free to download it. It will automatically calculate cells for you.
- How do things look? Are you covering your basic expenses, or do you have to rely on credit cards or savings to make it through the month?
- This is where we adjust for overages and put in a plan for our lifestyle goals. First things first – pay off debt. Set up a manageable plan to pay it down every month and take some away from expenses that can be cut, like dining out or new clothes. Next – set up savings/expenses that align with your lifestyle goals. Want to go back to school? Set up a savings plan for it.
- Now that you have a budget, you have to stick to it. Measure it every month – did you go over? under? It will take a few months to adjust your budget to a good baseline, and as you get pay raises or pay off debt you can further adjust it.
Adjusting Your Budget
A budget has taken us from debt to healthy savings, and it is the only reason we are able to pursue our goal of traveling the world next year. Knowing our lifestyle goals, income, and expenses keeps us on track and focused on what really matters.
We’ve adjusted over time to put more or less into savings, and you can, too. Perhaps your high school reunion is coming up and you need airfare and spending money that isn’t normally in your budget. You simply determine how much you need, add it as a temporary line item, and start saving. You could go ahead and buy the airline ticket with your savings and pay it back over time (this also works well for emergency situations). The trick is to have savings in the first place.
Budget Resources
There are several online resources to help you with your budgeting and saving plans.
- Mint.com is a good resource for keeping all your accounts in one place and tracking your budget. At once glance you can see where your money is going. Best of all, Mint is free.
- SmartyPig is an online savings account that helps you track small and large goals. You’ll be hearing more about SmartyPig later this month.
- The Simple Dollar is an excellent blog about personal finance from someone who is successfully digging his family out of debt and pursuing his lifestyle goal of being a full-time writer.
Once you start budgeting your money with a lifestyle goal in mind, it actually becomes fun to track because you are working toward something great.
What is your lifestyle goal? Do you have a budget to help you get there?
Related Reading:
Working Together: Our first DIY haircut
How to Get Ready for a Round the World Trip (the long way)
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Betsy Talbot writes about carving the lifestyle you want out of life you already have. When she’s not writing, she’s paring down, saving up, and getting ready for a year of travel with her husband.
About Betsy
Betsy this entire piece has such sage wisdom in it. You have broken it down into bite size pieces and your budget calculator in spectacular. I love your blog and the thoughts you and Mr. Betsy share because you are walking or have walked every step of this journey with your followers. Kudos to you…kudos to you.
Still trawling through the archives
That’s a great spreadsheet. I’ve downloaded others from various PF blogs and they have always seemed far too complicated and awkwardly set up for my use and so I have just stuck with what I came up with myself, which I have refined over time (probably to the extent that to anyone else it wouldn’t seem simple at all but that’s the way these things go).
However, soon (hopefully) I will be out of debt and will need a different way to budget. At the moment I simply can’t budget in a big way for things like eating out, entertainment, clothes or basically anything that isn’t absolutely necessary. I make my fixed debt payments, pay whatever other bills are due, make only slightly higher than minimum payments to credit card and by the time I’ve transferred a small amount to savings to cover annual expenses there really isn’t an awful lot left so it gets divided by the number of weeks that month (four or five) and that’s what I have to spend on everything that week.
By July I will have finished paying off some large dental bills that have really been hurting the last few months (I should have paid them over longer than six months, but that would have involved interest so I decided not to do it) and also have made my final payment on the big loan I took out five years ago. After that I will have some overdraft and credit card debt but plan to have that fully cleared by the end of the year.
So I will need to start thinking much differently about the way I budget and actually budget for what I need in various categories. I actually do have a section of my budget spreadsheet set up to track daily expenses and also convert all expenses into percentages of income and I really like the way you have your spreadsheet set up to give a figure for a percentage of available income to send to savings. I must start keeping my daily log again so that in a few months I have a somewhat realistic idea of what I actually need to be spending on the various categories.