Budgeting Nuts and Bolts

Brent Pittman —  01/09/2012

This is the core post about budgeting. The How to Budget post. I know some of you might have skipped ahead, but don’t forget to do the pre-budgeting activities first.

Budgeting is very simple. You are deciding before the month begins how your money will be spent. Every dollar earned will be assigned to a category.

Side noteIf you are in crisis mode i.e. a lost job, about to face foreclosure or bankruptcy, then you are budgeting to survive. Housing, food, utilities, and transportation come before anything else.

You’ll need to decide how to record your budget. Use what works for you: pad and pen, personal finance software, or a basic spreadsheet. Our family uses a basic excel spreadsheet for our budget, so let’s use that as an example.

Determine Your Income

If you completed the pre-budgeting activities or keep track of your spending then you know what you’ve been making and spending.

Time to write down what money is coming in. Everything. Both Regular and Irregular. Yes, even the $100 your grandmother has sent every birthday since your were 5. Budget every dollar. If you know it’s coming in, put it on paper. For those artists and free lancers out there we’ll talk about budgeting with a 100% irregular income later.

Types of Income Regular  Irregular 

(Monthly Take Home)

Income 1 $1,250
Income 2 $1,250
Birthday Money
Carry Over Previous Month $100
Self Employment Income $500

Flood Damage Check

TOTAL INCOME $3,100 $700

In our example above we have $3,100 in every month income and $700 in irregular income (meaning it doesn’t happen every month). In total we have a $3,800 family income we can spend on paper.

Budget Your Expenses

It’s time to budget your upcoming expenses for the month. Remember every month will vary, and it will take several months to perfect the budgeting numbers. Don’t be discouraged if your budget doesn’t balance out the first time. It will get easier with practice.

Here is our example of budgeting a $3,800 income.

ITEM Monthly Total Envelope* Total
Charitable Giving 250.00
Allocated Savings (Irregular) 250.00
School Loan 320.00
Dates 100.00
YMCA 59.00
Car Payment 375.00
Car/Renters Insurance 120.00
Mortgage 850.00
UTILITIES-Electricity 100.00
Household 50.00
Natural Gas 11.00
Laundry* 30.00 30.00
Cell Phone 155.00
Home décor 25.00
Internet 30.00
Groceries 250.00
Make-up 20.00
Postage 40.00
Gifts 75.00
Entertainment 100.00
Gas 120.00
Repairs, Oil change 25.00
CLOTHING* 100.00
Life Insurance 25.00
Flood Damage 100.00
Baby stuff:Diapers, supplies, etc. 50.00
Med Co-Pay/RX/Den/Opt, 50.00
Other I
Other II
Lunch Money* 40.00 40.00
Mad Money* 20.00 20.00
Emergency Cash* 20.00 20.00
Couples Spending* 40.00 40.00

TOTAL 3,800.00 150.00

 Important Points:

  • The total was $3,800 which equaled the expected income. If they had spend more than $3,800, cuts would have to be made.
  • This family didn’t budget for Emergency Savings as they already have an Emergency Fund in place.
  • No contributions to retirement were made as they are trying to get out of debt before they resume their retirement savings.
  • They are using the Envelope System in the categories with * and thus will get $150 out to spend in those categories. I’ll elaborate more in another post.
  • Allocated Savings category is a savings account for annual expenditures they are saving for a little each month. eg. Saving $100 a month for car insurance premiums that are paid every six months. When month six comes along you’ll have that $600 sitting in the bank and won’t be caught by surprise.
Action: Make your first budget. If it doesn’t balance to zero, make cuts or start figuring out how to increase your income.
Comment below if you have questions or suggestions on how to budget successfully. (Photo by Orin Zebest)

[This is part of my How to Budget Like a Pro blog series]

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Brent Pittman

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Brent is a financial coach and writer looking for the perfect donut. He believes personal finance should be both fun and accessible to anyone willing to learn.