So you’ve decided that living on a budget is the smart way to go and you’ve committed to give it a try. Good for you! Or maybe you’ve been trying for a while and to be honest, it simply isn’t working. Either way, I’m glad you stumbled on this simple guide to getting you started.
Think of your financial situation as a simple math formula:
INCOME – SAVINGS – EXPENSES = 0
With that in mind, here are the basic steps:
- Write down your take-home pay from EVERY source (all paychecks plus any other sources from which you bring home some cash). That’s the income side of the equation.
- Make a list of all your bills. I ask those I counsel to write down the name of the bill, the minimum monthly payment, the due date, and any notes (such as the remaining balance and interest rate if it is a credit card, car, etc.). Don’t forget to include a sufficient monthly amount required to cover those irregular bills (those you don’t pay every month, like taxes and insurance). Also don’t forget to include things like food, gas, entertainment, gifts, etc. You’d be surprised what people DON’T include when they’re trying to make their first budgets. Now you have the expense side of the equation.
- You need to save. Whether you “pay yourself first” or not is up to you…but SAVE something.
- On a monthly calendar, fill in the blanks. Write on there your paychecks (on your pay dates) and your bills (on your due dates). The stuff like gas and groceries need to go on there, depending on when you plan on going shopping or getting gas.
- As you review this calendar, you’re actually looking at what a business person would refer to as a cash flow plan. It will let you see the highs and lows of your income and expenses and help you make adjustments. Once you’ve got this done, make MINOR adjustments each month for a few months until you have a good feel for things.
As far as how much goes into each category – that’s where I can’t really be very specific. Some people have rent or a mortgage that’s $250/month, while others may have $2500/month to spend in that category. Some people have very specific food requirements so they’re grocery budget is astronomically higher than someone who has no food restrictions. There is really no rule of thumb or set percentage I can give you for all the major categories. However, if you’ll sign up to receive my periodic emails, I’ll give you a guide that gives you all of these steps in more detail, as well as printable worksheets to get everything going.