Creating a Budget

How to Create a Budget

Christine Parker, a financial planner, walks you through the process of creating a budget. Be sure watch the related videos for additional information about budgeting and saving money.

Keeping a Spreadsheet to Monitor Budget

I use a spreadsheet I made up to list all expenses and income right down to the penny. The spreadsheet lists income, and then all expenses such as groceries, gas, each utility, eating out, prescriptions, credit card bills, miscellaneous expenses (which I describe at the bottom of spreadsheet), absolutely everything.

It is updated every couple of days and balances with my check register which is kept on an 8 1/2 x 11 inch paper. The spreadsheet shows the whole year at a glance so at the end of the year, on one sheet of paper, you have all your income and expenses, and you can see where your hard earned money has gone, as it is automatically in categories.

By Marti from Athens, GA

Spending Lists

When it comes to our finances, they're very abstract. Check cards and electronic bill paying don't make it much easier; the concept of exactly how much money is spent is a difficult one to grasp. In the days of cash, it was much easier to understand where our money went. We started the weekend with a bulging wallet and ended with a slim billfold. We could actually see our money disappearing. However, it's impractical to pay this way today, yet it's hard to see the money disappear when there isn't any tangible money changing hands. Here rises the often asked question, "Where does all my money go?" To better answer this question, try to make your spending concrete by making a list.

The List

It's work, but that makes spending all the more painful. Painless spending is what caused the habits that we're trying to break. Keep required bills painless: the mortgage, your car payments, the utilities. However, try to make the extra spending a bit of a chore.

A good way not only to inventory your spending but also to add a bit of tediousness to your shopping is to make a daily list of every dollar spent. Keep a notebook handy to record the spending, and make yourself enter the spending into a larger receipt book at night. A day without spending would be an anxious retreat from this chore as well as a healthy banking day.

List the morning coffee, the gas, the lunch, and every item purchased at the department store that day. Then, in the evening, transpose these totals to a larger receipt book. Keep one page for essential payments that fluctuate like groceries, gas, and doctor's visits. Then, keep another page for all the other spending, the non-essentials.

Evaluate the List

Every so often you'll need to evaluate the list. At first look at it daily. Then, look at the week in general. Eventually, you'll be analyzing once a month. At some point you may be able to get rid of the list altogether; it's a way to visualize spending and shouldn't be thought of as a permanent habit (unless you want it to be). Look for gross overspending in key areas. Without a list, many would never realize that a coffee a day eats up an entire paycheck over the course of the year.

Tally weekly spending and compare it to the weekly paycheck. Are you spending half of your paycheck a week on random items? Cut through the unessential list of spending with a machete and raise your spending. Eventually, tallying will become a habit, and you'll inventory your spending list in our head before each purchase. That's the goal of the list.

Periodically, evaluate the essential but flexible list. You're stuck with the doctor's visits, but would a FSA benefit your family? Could you cut back on the grocery costs each week?

Remember, while most people look for ways to make more money, the easier option is to find ways to spend less. Create a new financial motto: spend smarter, don't work harder.

By Kelly Ann Butterbaugh

Find Out Where Your Money is Going

The first and most important step to setting up a budget is to find out where your money is going now. It is pointless to sit down and write out a budget with imaginary numbers such as "Groceries - $200" when you are actually spending $400 at the moment. This is just setting your self up for failure.

There are two methods. The first is the retrospective one where you dig out all your utility bills, credit card bills and cheque stubs and write down what you've spent over a set period and calculate your future outgoings, (budget), from this. I found this method to require a large block of time and to be highly inaccurate - there are always things missed, especially the small amounts of cash spent daily which can add up to a considerable amount.

The second method is the one I used, (and continue to use), which is writing down every cent I spend in a small 'spending' note book. Before you go shopping count how much cash you have in your purse. Get receipts for all purchases and for small cash transactions jot them down in your notebook. When you get home check that all cash purchases are in your book and that the change in your purse is correct, having deducted the amount spent from your total before you went shopping. Transfer all the amounts spent on credit cards/charge cards/cheques into your spending book also. It helps in the later analysis of your spending to be quite detailed with your description - e.g. Socks for Jim - $12.75. or Coffee and cake - $3.25, etc.

At the end of the week examine your notebook and transfer the amounts to a second 'budgeting' notebook. This should have a page per category, e.g. the items above would be 'Clothing', or 'Jim's clothing', (whichever would be most useful for you), and 'Eating Out'. Your categories will evolve as your budget evolves so keep it simple at first. I initially had one category for groceries. I then needed to find out how much I was spending on junk food so subdivided it. Since then I have separated out cleaning and bathroom products. The system that evolves will reflect your individual needs.

Each time you pay a utility bill or school fees or a doctors bill, etc. write this in your spending book as well. In fact all money that is spent in your household, including your spouse and children spending should be recorded.

When you have done this for 3-6 months you will then be able to set up a budget. By adding up all your spending in each category over, for example 6 months and dividing by 6 you will have your average spending for a month. That is the amount you will need to budget for each month if you do not want to receive an unexpected bill you cannot pay. If your total spending exceeds your income you know you are heading for disaster BUT you will also be in a very good position to see exactly where you are wasting money and it will be easy to cut back in those areas to allow for more in the essential spending catagories.

This may all seem very time consuming and hard but it can be fun, does become a habit, and can be quite obsessive when you can't discover where that 'missing' $15 went from your purse! Your little spending book will empower you to cut back or stop spending on non essentials so you can direct your money to more important things like debt elimination, paying off the mortgage or that holiday you thought you couldn't afford.

I have loads more to say on budgeting but you may have lapsed into a coma at the length of this tip already so I'll write again another day!

By Jo

Create Your Ideal Budget

Start by listing everything that you spend money on each month and how much you spend. Add up the list to get your current total budget. Once you have that information you can start creating your ideal budget. Look for ways that you can cut your spending in each category and then list the ideal amount next to current amount. At the end of the month, calculate your spending and see how close you came to meeting your ideal spending amounts.