Do you feel like you have more month than money? Do you look at your bank account and wonder, “where did all the money go?”
We’ve been there too. Many years ago, our cash flow sucked, we put Christmas on a credit card, and I wasn’t sure how I was going to pay for a large tax bill.
During that time, I started to budget for everything. Every aspect of our lives was included in our budget. I came up with strategies to help us pay for yearly bills, large expenses, and we were able to pay off debts. We got back on track with planning our spending and we were able to breathe again.
When people hear the word budget, they think “restriction” and “no fun”, but honestly that couldn’t be further from the truth.
A budget might not change your circumstances, especially if the problem is income, but a budget will help prioritize the funds that are available. A budget could help you avoid late and insufficient funds fees, find money for an upcoming trip or expense, and ease a disagreement over finances in a marriage.
Personally, budgeting has allowed us to control of our money, reach financial goals, and start planning for our dream life.
Another way to think of a budget is a spending plan. You are directing your money where to go–giving YOU the authority over your money. When there is no authority over money, it will slip through your fingers.
As a planner by nature, I actually like the term, “spending plan.”
So are you ready to start a budget? Keep reading and let me show you my favorite way to budget.
How to Start a Budget (and be successful at it!)
I discovered the term, Zero-Based Budget, when my husband and I took Dave Ramsey’s Financial Peace University home course many years ago. We have been using this system ever since. A zero-based budget is planning for every single dollar of after-tax income. For example, if your paychecks net to $3000 a month, then you plan the spending for $3000, and not a single dollar over or under.
7 Steps to Start a Zero Based Budget:
These steps will walk you through planning a budget for the following month. For example, if today is May 22, then follow these steps to plan for June’s budget.
1. To get started, gather the following:
- lined paper
- a calendar designated for budgeting
- receipts, statements, all upcoming bills, and any other history of your spending.
2. Create a budget calendar.
I highly suggest using a separate paper calendar from your normal planner to eliminate any confusion. Also color coding will be helpful as this is a visual exercise, and you will be using all of this info in the upcoming steps.
On your budget calendar:
- Write down all of your bills on the due dates, along with the amount that is due. This could be your rent/mortgage, utilities, loan payments, anything that has a due date.
- Write down any events/holidays/activities that will require funds for the month that you are planning, along with a projection of what you’ll need.
- Also, using a different color pen/pencil or highlighter, write down all of your income sources on the days that you expect to get paid, along with the amount.
A printable budget is included in my Family Budget Spreadsheets bundle. Or, you can find blank calendar pages by Googling, “free calendar template” or I’ve found blank monthly calendars at the Dollar Tree.
3. Set your calendar aside, and grab some lined paper. At the top, write the word, “INCOME” and then list all of your after-tax income sources for the month you’re planning, and total the income. You should be able to pull these numbers from your budget calendar if you filled it out correctly. SEE SAMPLE BUDGET PIC BELOW.
This total is how much you will be budgeting for, so be sure to be accurate. If your paychecks are inconsistent, you will need to cautiously estimate your after-tax income.
4. Next, under the list of your income sources, write the word, “EXPENSES.” SEE SAMPLE BUDGET PIC BELOW. Break your expenses into two categories:
- Necessary (for survival)
- Non-necessity/extra (can survive without, but nice to have).
Necessary expenses could be:
– Home: Mortgage/rent, utilities, insurance, taxes, necessary repairs
– Food: groceries, meals out, school lunches
– Transportation: loan payments, fuel, insurance, service/repairs, necessary parking/tolls
– other necessities: insurance, medical expenses, tithe/giving, savings, loan payments (credit cards, student, personal),
Non-necessities could be:
– Clothing, smart phone plan, recreation, gifts, beauty/personal, entertainment, anything that you might spend money on, but it’s not necessary for your survival.
Only you can decide what’s necessary vs. non-necessity, but it’s critical that you include everything that you could possibly spend money on. Use your calendar as a guide, however not all of your spending will be on your calendar, so it’s imperative that you list ALL of your possible expenses. EVERY.SINGLE.THING!!
5. Now that you have a list of every possible expense category, project your spending on each category for the month that you’re planning.
Some items are fixed and are recurring each month, but other things are variable (change month to month) such as groceries, heating/cooling, clothing, restaurants. Use old receipts, bank statements to get an idea of how much you must spend. Some of the numbers will be on your calendar.
6. Total your expenses.
7. Calculate the simple math equation: Income – Expenses = X.
- If X is greater than zero, then you are projecting to spend more than your income.
- If X is less than zero, then you are projecting to spend less than your income.
What happens when Expenses are MORE THAN Income?
Double check your expense projections and compare to previous statements and bills to make sure they’re correct. To get to zero, you will need to make cuts, so start with the Non-Necessity expenses first. What can you reduce for this month?
Next, check your necessary expenses. Just because something is necessary to your survival doesn’t mean you can’t cut back on it. You can’t cut back on your rent or mortgage payment, but you can find ways to save money on your groceries.
More budgeting resources:
- How to Budget and Save for Large Yearly Expenses, such as taxes, home owners and auto insurances.
- The grocery category is the easiest one to reduce. I list tons of ideas: How to Slash Your Grocery Spending
- How to Watch Great TV without Cable – We were able to cut $50/month by giving up cable, yet we still watch great TV.
- 31 Days to Find $1000 – I was able to find over $1000 with these ideas.
- If you’re spending too much at restaurants, read: 15 Smart Tips to Save Money When Eating Out
- I would never tell someone to cancel the gym membership if they use it, and if you do use a gym membership, find out how my husband got a FREE family gym membership. But if you have a membership, but don’t use it, CANCEL.
What happens when Income is more than expenses?
What a great problem to have, right?!?! First, check your projections to make sure they’re accurate. If they are, you can consider putting the extra funds into an emergency fund, pay off a credit card, or save for another financial goal. You don’t have to make the decision immediately, instead give it some time to think about and make the move at the end of the month when you actually have the extra money.
How to implement the budget:
This might be the hardest part of budgeting! Budgeting is so important and it is going to take time to grasp on an ongoing basis, so please do yourself a favor and invest time in the process. Budgeting is a lifelong habit. This is not a once and done deal.
If you have financial goals, budgeting will be an important tool to reaching those goals. And once you reach a financial goal, there are always more goals waiting in the wings for their turn.
If you’re new to budgeting and want to make sure you don’t over spend, I highly recommend using CASH as much as you can in the early months of budgeting. Yes, COLD, HARD CASH!
After you work your budget, and X = ZERO, highlight all of the bills that are auto-withdrawal and taken directly out of your bank account. I automate as much as I can, including our mortgage, all of our utilities, and our tithe. Next, divide the categories that are left into 2 groups:
- The bills that are paid by check or online bill pay.
- Expenses that could be paid with CASH, such as groceries, restaurants, personal care, clothing, and entertainment.
Set aside cash for the list in #2. Keep it safe in envelopes marked for each category, and remember to ONLY USE the cash you have budgeted for those categories.
Yes, you really can budget!
Follow these steps EVERY month. If you are new to budgeting, review and work on it every single day. Keep your previous budgets and calendars, and think about storing them in a binder. They will be helpful.
Join my private Facebook group: Family Budgeters Unite! This group is a safe place where we talk, motivate, and share ideas about budgeting. Around the 15th of the month, I start the process of writing the next month’s budget with the group. We work through these steps together.
Additional Budgeting Resources:
If you prefer spreadsheets, I designed 10 Family Budget Spreadsheets to help you create a budget, organize your finances, plan for major purchases, understand your cash flow, and take control of your money.
This workbook of 10 Microsoft Excel spreadsheets includes:
- Family Balance Sheet – A one page snapshot of all your accounts. You enter your information and the spreadsheet calculates your total assets, liabilities, and your net worth. You might already have this spreadsheet, since it’s free for joining my newsletter community.
- Financial Goals – Use this spreadsheet to quantify your financial goals for the current year and years to come
- Monthly Budget – This spreadsheet will help you plan and budget your monthly income and expenses before the month begins. This is a one month only spreadsheet.
- Actual Spending Log – Use this spreadsheet to enter your actual income and spending for each month. This is a 12 month spreadsheet.
- Personal Escrow – Use this spreadsheet to plan for your high yearly expenses, such as property taxes, association fees, home/auto insurance, etc.
- Special Purchases – Have some fun with this spreadsheet and use it to plan for upcoming large expenses, such as vacations, home renovations, equipment, replacement, etc.
- Gift Giving – Use this spreadsheet to plan for your gift giving for the entire year, but especially Christmas.
- Petty Cash – This spreadsheet can be used to keep track of high value gift cards and any cash that you have tucked away
- Summer Planning – Use this spreadsheet to plan for your summer fun, such as vacations, day trips, pool memberships, home/landscaping renovations, etc.Cash – This spreadsheet can be used to keep track of high value gift cards and any cash that you have tucked away.
- Savings Goals – Set savings goals for the year and use this spreadsheet to track your progress.
- Debt Payoff/Savings Trackers – Print these 2 trackers and place on the refrigerator or other prominent location. Color in the blocks as you hit your goals.
- A Weekly Menu & Grocery List Planner (pdf)
- A Printable 12-Month Calendar (pdf).