Budgeting Tips – The Simple Basics You Need to Know to Create a Budget

Many of us internally cringe or feel rebellious when we think about setting parameters on our spending.  Images flash in our minds of having to pinch pennies for the rest of our lives and do without things that bring us joy–like nice dinners out, new clothes or fun, exotic vacations.  We react this way because we assume that in order to limit our spending we have to force ourselves to adhere to a very strict budget.

Spending Plans are different than budgets in that they allow us to balance our desire to save more for the future (by investing in a secure retirement plan, an emergency savings fund, a down payment for a home and/or funds for a much needed vacation) with our desire to enjoy our lives now, in a way that supports our values and gives us freedom of choice.  A Spending Plan, typically made at the end of the month, involves creating guidelines and making intentional choices about where we’d like our money to go in the upcoming month.

1. Create a spending plan based on your spending history. Look at your spending for the previous month or the past couple of months by going through your bank statements, check registers and credit card statements.  HINT:  If you know you won’t take the time to gather past statements and to review your actual spending history you can make an educated guess at the amounts that you think you realistically spend in each category.  Then try to adhere to your new spending plan for a month.  Throughout the month add any bills/expenses that you forgot. Make adjustments to your spending categories at the end of the month – if you discover that you’re numbers weren’t realistic.

2. Divide your spending into these four broad categories: 1) fixed expenses, 2) variable expenses, 3) debt payments (don’t include your mortgage in debt payments–instead record it under your fixed expenses. You will, however, want to record your car loan under debt payments) and 4) savings.  You might not have any money going towards savings right now, but you’ll still want to retain this category to serve as a reminder of your savings goal.

3. Assign numbers to your spending plan based on your spending history, using your four broad categories. Itemize your individual expenses below each broad category.  For example, under the category of fixed expenses you’ll list: mortgage, health insurance, phone bill, car insurance, utilities, etc.  Record all your expenses on the left side of a piece of paper and on the right side list your income, your partner’s income and any income from other sources, and then get a total for all your income sources.

4. Make sure you work your numbers until your expenses equal your income so that your income minus your expenses equals zero. If you end up with an extra $200 after you’ve subtracted your expenses from your income, don’t just leave it as an extra $200.  Assign the $200 to a spending category like savings.  In order for your spending plan to really work you’ll need to refer to it once a week or at the very least, twice a month.  Mark out any expenses that have been paid and calculate how much money you have remaining to make sure you have enough money to make it through to the end of the month.  Your spending plan should have coffee stains on it and be well worn by the end of each month!

Simple Action Steps You Can Take Now:

1. Print off this article and put in on your refrigerator or tape it to the kitchen wall.

2. Ask your spouse in a very loving and kind way if he/she would be willing to set up a time to talk about creating a spending plan. Just know that they might feel a little defensive at first.  Tell them that you’re not out to control their spending but that you’d like to sit down and talk about how the two of you could achieve your financial goals together.

3. Determine a specific time and date to create a spending plan. Write this on your calendar. Remind your partner the day before so that it’s top of mind for both of you.

4. If your partner doesn’t want to do this – don’t let that deter you! Create a spending plan on your own and then show it to your partner and see what kind of tweaks and changes that they want to make – remember both of you have got to agree to the spending plan  – otherwise your partner won’t have the emotional “buy-in” to stick to the spending plan!

5. Collect your last month of credit card and bank statements and have these ready in advance of your spending plan conversation.  After you’ve completed these steps you’re ready to create your new spending plan with your partner!