To manage money effectively, we must know where it's going each month. To do this, it's important to write down your expenses and spending categories.
Don't skip this important step! A budget or a spending plan will help you to see where you are spending the majority of your money and whether or not it is allocated properly.
"A budget is telling your money where to go instead of wondering where it went." John C. Maxwell
Start by simply listing all your expenses. The mortgage/rent payment, electricity, water, phone service, gas for the car and groceries will likely top your list.
But don't stop there! Get into the nitty-gritty details of where your money really goes. This may take a while and it's ok. Write down whatever you can think of and then come back and jot other items down as they come to mind.
Our budget categories look like this:
--Tithes and offerings
- city bill (Our electric, water, trash pick-up, etc. are all on one bill.)
- gas heat
- satellite television
- communication (Our phone, internet and cell phone service are bundled on one bill.)
-- Automatic Withdrawals
- Life insurance
- Website for business
- hair cuts
- personal allowance
- dog food
- thrifting and yard sales (This ends up paying for the bulk of our clothing and household purchases.)
- Extras ( This category includes any extra non-regular monthly expenses such as vet appointments, gifts, bulk food purchases, trips we've planned, etc. Many of these are already planned for and come from savings but it is helpful to write it down so we know exactly what's going on.)
** We are currently shopping for medical coverage and renter's insurance so that is why they are not listed above. They will be added once we get that in place.
Every person or family's budget is going to look different. It is individualized based on your own lifestyle and what's important to you. For example, we don't have a regular eating out budget. It varies from month to month based on income and activities. While we enjoy the occasional restaurant meal, it's not absolutely necessary that we have that in our budget at all times.
Be sure to remember to account for hobbies, crafts, gym memberships, manicures and pedicures, magazine subscriptions, Starbucks, etc. Also any debt or credit card payments!
We each have a personal allowance which is money for each of us to spend however we see fit. My husband often uses his to buy us a treat and mine often goes towards gifts, if needed. Several years ago, I saved a good share of mine each month to buy a grain mill. When we were first married, my husband saved for a while to purchase a fretless bass guitar. The amount that each person gets is up to you. It does not have to be equal; whatever you decide with your spouse is fine. The amount depends first upon your budget and then on what the money will be used for. If it includes stuff for the kids, lunch money, etc. it may need to be higher than just frivolous extra money. Our "play money" amounts have fluctuated over the years, with $40 month / $10 week each being the highest and the norm being around $20 month/ $5 week. For our lifestyle, this works great!
After all the budget categories have been written down and taken into account, the next step is to put dollar amounts beside each one and see if there is enough money to cover everything.
When doing this, I figure up basic needs first ( housing, food, car expenses) and then add other categories in order of importance and money.
After doing this, now it's time to add up your amounts and see if your income matches your outgo. Some tweaking will probably be necessary. Maybe a bit less in groceries or one less meal out. Or you may eliminate a category altogether until you have extra funds because something else is of higher priority at the moment.
If you are new to budgeting, don't let this discourage you. This is a process that will most likely take you several months or more while you figure out how much you are spending. Press on! I find that even after regularly following a budget for a while, I still am constantly tweaking, looking for ways to cut back in some areas and adding to others.
Granted, this list may not be all encompassing and cover everything, but it should be a good starting point for those who are new to budgeting or are looking to fine tune the one they have.
Feel free to ask any questions you may have or offer suggestions for successful budgeting!
Tune in next time as we discuss savings and how we do it!
**This post is part of Frugal Fridays!