The Beginner’s Guide to Budgeting

Two nerdy confessions:
1.  I like spreadsheets and data.
2.  I enjoy budgeting.

I think these two go hand in hand.  That, along with being married to someone who likes spreadsheets and budgets even more than I do, made it imperative that we make a budget for ourselves. Even before Kevin and I were married, we made budgeting spreadsheets for our wedding and talked about how important it was to us to make wise choices with our money.  Our long-term goal is to retire early so we can spend more time with our family.  Through our over two years of marriage (and over 24 rounds of budgeting) we’ve refined the budgeting process and came up with a system that works really well for us (and hopefully will work for you, too).

First Things First

If you are budgeting with a spouse or family member make sure to have a conversation about expectations.  For us, we made it clear that our budget is a guideline, but it doesn’t have to be fully restrictive.  (If you are living paycheck to paycheck, you may have to make your budget restrictive.  In this case, Dave Ramsey’s envelope system is a great choice.)  If our family wants to go out to dinner and we’ve already spent our restaurant money, it doesn’t necessarily mean that we can’t go.  We may cut back on other categories or expenses, decide to use overflow money, or spend the money anyways.  OR we may decide not to go.

For example, you might want to discuss some of the following prior to budgeting together:
What is our biggest category of expenses?  Can we save money in that category at all?
What would we like to spend less money on?  Is there anything we can afford to spend more money on?
Will each of us have “fun money” designated for stuff we’d like to buy?
What does our debt to income ratio look like?
Is there any way we can save money through apps, websites, or services?
What are our short-term and long-term financial goals?
How much are we going to save?  How are we going to structure our savings? (CDs, 401ks, stocks, index funds, etc.)
What do our bills look like each week?
What kind of expenses are fixed?  What kind of expenses are variable?
How often do you want to budget?  How often will you check your budget?
How restrictive is our budget?  If we run out of money in a category are we done for the month or is there some wiggle room?

Organizing Your Spending

The best way my husband and I found to organize our finances was to create a spreadsheet for our budget.  Spreadsheets are a wonderful way to do money-management because they can be logically organized and, if you know enough about Excel, can do a lot of the work for you.

Defining and Creating Categories and Subcategories

Remember when you discussed all of the questions listed above?  Great!  Use these answers to create broad categories and more refined subcategories for your budget.  You can use the examples below as a guideline and add your own as you see fit.

Sample Categories and Subcategories for Your Budget

• Income
  • Husband’s income
  • Wife’s income
  • Reimbursements (gas check, per diem, etc.)
  • Credit card rewards
  • Selling items on Amazon, eBay, Etsy, etc.
• Savings/Retirement
  • 401k
  • Stocks and bonds
  • Personal IRA
  • CDs
• Housing
  • Rent/mortgage payment
  • Renter’s/homeowner’s insurance
  • Household items
  • Repairs
• Food
  • Grocery store
  • Bulk grocery store (we seperate these because they are often separate trips and different designated amounts)
  • Fast food
  • Restaurants
  • Alcohol
• Utilities
  • Natural gas
  • Water and sewer
  • Trash
  • Electricity
  • Cell phones/landlines
  • Internet
• Auto
  • Car payments
  • Auto insurance
  • Parts and fluids
  • Gasoline (consider splitting it up by each car you have)
  • Federal or state fees (license renewals, tab renewals, etc.)
• Essentials
  • Clothing
  • Medication
  • Dentist
  • Doctors
  • Toiletries
• Debt payments
  • Student loans
  • Car loans
  • Personal loans
  • Credit card payments
• Entertainment
  • Movies
  • Subscriptions
  • Cable/satellite TV
  • Night out
  • “Fun” money (both Kevin and I each get a monthly amount of no-guilt fun money that we can spend without asking the other person)
• Miscellaneous (these often change month-to-month)
  • Pet supplies
  • Special occasions
  • Holidays
  • Birthdays
  • Vacations

The Better Budget

I use an Excel spreadsheet that takes all the hard work out of figuring out what my spending looks like.  It calculates all my totals, shows me a pie chart of my spending, tracks my budgeting “accuracy”, and allows me to store my previous month’s budgeting so that I can refer back to it if I want to see what number I used on a certain category at any point in the past.  On top of all that it allows me full customization of my categories to fit my life, which can change month to month when special events or opportunities arise.  It’s called The Better Budget, and you can find it here (non-affiliate link) if you’re interested.

Using Your Spreadsheet-Month 1

Once you have all of your categories and subcategories inputted into your spreadsheet, you’re ready to start your first month budgeting.  Go through each subcategory and input what you would spend or earn in a month (or calculate by multiplying your weekly spending by 4).   Depending on how accurate you want to be, you can either check what you have spent in the past (find an old bank account or credit card statement) or you can estimate.  Doing the math will get you a more accurate result, but it’s up to you.  Still not sure what to allocate?  The Economic Policy Institute has a database that calculates the cost of various items based on your zip code.

Now, figure out your projected monthly net.  To do this, add up all your expenses and subtract them from your income.  If you have a positive number, wonderful!  You’re in the green.  Decide what you would like to do with your saved money (invest, put in a savings account, save for a vacation, etc.).  If you came up with a negative amount, that means you spend more money than you make.  Go back to your budget, look at your categories, and evaluate where you can cut spending.  *Hint: Define your needs and wants.  Do you go out to fast food two times a week?  Do you love that coffee store latte?  These are nice, but not necessities.  

Ideally, you want to be making more than you spend each month, but there may be some months where this isn’t feasible.  Say you made a large lump sum debt payment or it’s December and you’re buying Christmas gifts.  These are one-time expenses so we tend to give ourselves some leeway on these months.

Helpful Budgeting Hints from Personal Experience

1. Give yourself some grace for the first few budgeted months.  Your projections and actual balance may not align very well.  Budgeting is a process that takes a while to refine.  Go back and see what you did not anticipate and adjust it for the following month (if applicable).
2. We like to go through each week and see if there is a special event happening and then budget accordingly.  Week 2 we have a wedding and want to buy a wedding present?  No problem….budget for it!
3. Saved money is better off working for you as investments rather than sitting in your bank account.  If you can afford to invest, it’s worth it!  
4. YNAB (You Need a Budget) is a great budgeting software if you’re looking for something more comprehensive ($60).

It is my genuine hope that this post has helped you create and manage a budget.  Please remember, while money is necessary, it’s not the most important thing.  Spend and save wisely, my friends!