6 Steps for Creating Your First Budget | spelhouseLove

6 Steps for Creating Your First Budget

When Hubby and I attended our first budgeting class together we were asked to create a quick and dirty, back-of-the-envelope type budget. Well, this exercise was not quick and it definitely was not easy. I had no idea how much money we spent (or in actuality more like overspent) every month. I didn’t know the cost of a gallon of milk or a gallon of gas even though I was face to face with the gas pump a few times a week. In fact, I was a bit nervous because I had just gotten a Keratin treatment and Hubby had no idea how much it costs, but he was soon about to find out. Most blog posts about budgeting tell how to manage an existing budget, but just getting started can be like feeling around in the dark if you’ve never done it before. I wish I had been a little bit more prepared before I created my very first ever budget, so here are a few tips I would like to share so you’re not caught off guard like we were.


1. Enroll Online
Enroll in online banking for all your financial accounts, whether checking, savings, credit cards and loans. It’s easy, safe and convenient. You’ll have access to accounts 24/7 which you can check on a laptop, tablet or mobile device. Each online account makes it easier to track your spending, review your daily balance and even pay bills (which saves you time and stamp money). To enroll, simply go to your bank site for each existing account and follow the prompts to register for an online account. Most folks nowadays already use online banking, so if you currently do not, this is a huge help in seeing where all your money disappeared to last month.


2. Keep Track of Income & Expenses for One Month
If you have online banking and that’s all you use, then this step is pretty easy. You can just write checks or swipe away all month long if you use credit or debit cards. However, if you use cash for some items, you’ll need to keep your receipts and I mean all of them. This even includes the $1.29 Slurpee you got at the gas station. The best way to do this is to snap a photo on your phone of each receipt you receive when you use cash. This way you won’t lose it.


3. Create spending categories
Start with the big ones like housing, transportation, food (which I like to separate into groceries and eating out), tithes, savings, and lifestyle (such as shopping and hair and nails – oh yes you’d better believe I have a hair line item in the budget). After your first month you may find yourself adding more categories which is expected. You’ll see that you spend in many more places than you originally thought. For example, automatic drafts that you don’t even think about you may completely overlook, and little things like vending machines and seemingly little things like tolls, you’ll see quickly add up significantly.


4. Clump expenses into categories and add them up
Now that you’ve got access to all your accounts and you have some high-level buckets created, pick a thirty day period to look back at all your expenses. It’s easiest to select the previous month, because hopefully it’s very similar to your current spending habits. This step is hardest and the longest step in creating your first budget. You’ll need to log into EVERY online account you created and write down EVERY expense under the spending categories you already created. And if you need to add or modify your spending categories once you start to see what your expenses actually look like, of course that’s okay. Make sure you include your credit card payments, student loan bills, and any other debt. One easy way to tell if you spend more than you make is if you’re not paying off all your credit card bills at the end of the month. If you leave a balance on the card that you cannot afford to pay each month, then you’re living beyond your means.


5. “Rip-off-the-band-aid” arithmetic
This is where you close your eyes and hope for the best. Just kidding. Knowing and confirming that you overspend is the reason why we don’t budget. We don’t want to see what’s really going on with all the pennies that run through our fingers each month. Add your total monthly take-home income together (all your paychecks after taxes, retirement and insurance are taken out) and then subtract all the expenses you tallied up in step 4 and see what remains. Don’t be alarmed if your expenses exceed your income. That is the case for most people and the most important thing you can learn from creating your first budget. In fact, this can be a bit shameful when you see the reality. I’ll write another post sharing what to do if you have money leftover in the rare case that’s you, but more likely you’ll want to know next steps if you spend more than you make. These first five steps are pretty labor intensive, but necessary, so that you can really see and feel what’s going on with your finances.


6. Evaluate and re-allocate.
The most important next step is for you to evaluate your spending patterns and see if you’re okay with how much and where you money is going. If you’re not okay with some expenses, or the amount of money you spend in that area does not align with your values, you can start to eliminate it. Some folks see that spending $300 on cable when they have $100 in late or overdraft fees may not be the best use of their hard earned money. You can create your next month’s budget by sifting dollars around now that you’ve had a chance to reflect on your current spending.


For your next budget, you will assign an amount to each category based on what you now know is reasonable from looking at the previous month. If you spent $1000 on food last month, it’s not reasonable that you’ll only spend $200 this month because you’ll need to create and get used to a new system of behaviors to reduce your spending first. Start making changes in discretionary buckets first and keep the big bills like utilities the same. If you’ve already cancelled some unnecessary expenses, you can re-allocate those funds to more important areas such as debts or savings. You may find yourself reducing the total bucket for several lifestyle expenses by cancelling fees and subscriptions, ending that daily Starbucks trip, limiting expensive hobbies, paying bills early or on time to eliminate interest surcharges and reducing eating out at restaurants (food is usually the most shockingly under estimated category for most people because it’s a highly emotional purchase).


Thankfully, there are tons of apps out there that can help you create and manage monthly budgets and expenses going forward. Decide on a method that works for you. I highly recommend the EveryDollar app to get you started. Hubby and I use it every month and sit down to create our budget together. We check-in weekly to see how things are going and to discuss if we need to make any changes. We call this discussion a Budget Committee Meeting. This meeting is designed to last only 17 minutes and it’s a great way to get a quick pulse on if you’re sticking to the plan and discuss future budgeting goals.

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Hi. I live in North Texas with God, my man, my boys, and a sweet baby girl.
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