To get started in setting up a budget or refining your current budget, you need to know where your money is going!
Tracking
Tracking is an easy way to see what money is coming in, and what money is going out. Start by getting a small notebook or piece of paper you can carry with you every day. Write down what money you gain, and what money you spend. As you make this record, categorize your purchases. This will help when you actually set up your budget. To get the best estimate of where your money is going, you should track for one month. Some like to track every penny; others like to only track variable expenses like entertainment or food.
Tracking your expenses is not always easy. What is important is that you find a way to make it work for you. If carrying a notebook seems unrealistic, save your receipts and review them every week. Remember to write down your expenses in categories.
Tracking may reveal a few surprises! You may discover that you spent much more than you thought on eating out, or on soda breaks at the vending machine. Now that you know how much money you are spending, you are ready to set up a budget. Setting up a budget is simple; determine how much you should spend on food, gas, entertainment, and other expenses. Tracking will help you determine where you can give and take in your budget.
Budgeting Methods
Checkbook: This method is useful for those who like to pay with checks or use a debit card. In a blank checkbook register make four or five vertical lines from the top to the bottom of each page; this will be for your categories of variable expenses. In each category write the allotted amount you wish to spend. As you write checks or use your debt card, subtract the amount of the purchase from the appropriate category. Rent and other fixed expenses do not need an individual category, they can just be written in as they are paid. Remember to keep a running total of what is in your account, not just in each category!
Spreadsheet or Budgeting Form: With a computer spread sheet database, ledger paper, basic budgeting form, or blank sheet of paper list all your spending categories along the left side. Create a column where you will write in how much you plan to spend in each category (use your tracking information) then create a column where you can write what you do spend for each category. Try not to go over! At the end of the month evaluate it. Did you over spend or under spend in any category? Now you can make adjustments for next month.
Interactive Sample Spending Planners:
Envelope System: This works well for flexible categories. Use an envelope for expenses such as gas, or entertainment. From your tracking decide how much should be allotted to that category. Place cash in the envelope. Keep it in a safe place to be used as needed. It is easy to see how much is available and when the cash is gone, it’s gone! This can help you to cut back in certain categories as well.
Note: It may be unwise to use the envelope system for large expenses such as rent or mortgage payments; it may not be safe to have such large amounts of cash lying around.
Purchased Computer Programs: There are many computer programs that can compute a budget for you. However, it is still your responsibility to accurately insert your income and expenses. Some programs include Quicken and Microsoft Money. They are easy to find and user friendly!
Variety of methods: Many people like to use a variety of methods. Try a few and see what works for you. You may enjoy keeping track of your major expenses in your checkbook or spreadsheet, and using the envelope method for flexible expenses.
Evaluate
At the end of every month, evaluate your budget. Is it working? Why or why not? Make some adjustments and try it again. Sometimes creating a budget works just right the first time, and sometimes it does not. Don’t give up and you will find what works for you!
How to make a budget successful:
-
Have a personal allowance - Budgets that are created too tight or right to the penny may be harder to keep.
-
Leave room for savings - Savings will help you keep your budget when emergencies occur.
-
Spend adequate time creating and evaluating your budget - It will be easier to follow and understand.
-
Communicate with your spouse and family - Make your family apart of creating the budget and be sure everyone has an understanding of the budget.
-
Have a positive attitude!
Irregular Income
If your income is irregular, take the amount of money you earn in a year and divide it by 12, then use this figure to set up your spending plan. For example, if you earn $24,000 over a 9 month period, but do not work for the other 3 months, set up your spending plan at only $2,000 a month. Discipline yourself to not spend more than the allotted amount each month. This way you will not find yourself financially short in the months of little or no employment. Tracking your expenses during the year will also help you make a realistic spending plan with your irregular income.
Create your budget around your income. If you get paid twice a month, you may want to create a two-week budget. If you have seasonal employment, you will need to have adequate savings for the periods of low or no income. To prepare, begin tracking and start saving even a little money immediately. You may need to track for more than a month to get a good idea of what it takes for your family to live. At the beginning of each month, be determined to only spend that amount. Any extra should go into savings to help you get through the slower months. This will take effort on the part of the whole family. When the family income is high, it may be hard to watch your spending. Communicate to your family the importance of having enough money saved for the off-season.
Budgets are a constant work in progress. You will always need to evaluate your budget; it will change as your family, income, job, and even location change. It is all right if your budget is changing, as long as you are the one in charge!
Step Down Principle*
You can save money by simply stepping down on your expenses. For example, if you enjoy going to the movies but need to save some money, consider stepping down!
Let’s see a movie! (this example does not include popcorn or a drink)
~An evening at the theater for a new release $6.50
~A matinee at the theater for a new release $4.50
~An evening at the theater for an older release $3.00
~A matinee at the theater for an older release $2.00
~Rent a movie to watch at home $3.99
~Local Library $0
Let’s go out to eat…how about pizza! (this example is for one large pizza)
~A meal at a nice pizzeria (include salad bar and drinks) $25
~Order take-out from a fast food pizzeria (with a salad package add $3) $12
~Order from a take and bake pizzeria $9
~Buy the ingredients and make the pizza as a family (use frozen dough) $6
~Buy your favorite frozen pizza and cook it at home $3
If you try to go from the top step directly to the bottom step you may not be successful. It is easy to apply the step down principle to any expense, entertainment, eating out, purchasing household supplies, the stores and seasons in which you buy clothes, and dating… be creative, how can you “Step Down?” Remember; take one step at a time!
Your budget should only fit one person…YOU!
Budgets are as unique as the person who creates them!
Read more about it:
Tips for Sticking to Your Financial Plan
The Bucket Theory of Financial Management
Information Adapted from: *Alena Johnson Utah State University Lecturer; The USU Family Life Center Housing and Financial Counseling Services; Successful Money Management (EC 428.1-4) by Dr. Barbara Rowe with Kay W. Hansen and Marsha M. Peterson, Utah State University Cooperative Extenstion Service, November 1990; and Using a Check Register to Track Your Expenses by Marsha A. Goetting, PhD, CFP, CFCS, and Judith G. Ward, CFCS, Montana State University Eztension Service Family Economics Specialist, and former Hill County Extension agent. www.montana.edu/wwwpb/pubs/mt8703.pdf