Budgeting 101 A How To Guide for Home Finances

Budgeting is a tough thing to do. In a world where we are bombarded with products to spend our money on and access to credit, it is increasingly harder to maintain a balanced financial outlook. As technology drives the price of certain things lower, it makes it harder to resist the pull of these items. I get it. I live in today’s world. The issue comes in when you look at your bank account and see it shrinking. How do you put the brakes on the spending? How do you balance savings with “living”? We need to have our hobbies and wants, but we also must be responsible.

This could be the scariest part of the process. I suggest before you do anything, you have a frank talk with your spouse/partner (if you have one) about what you are planning to do. You need their support and cooperation or else you will be fighting an uphill battle all the way.

You need to know this before you even start to think about setting up your budget. Are you looking to reduce debt? Save? If so, for what? Retirement, a new house, a car, home improvements? You need to define this so that you know what you are aiming at. You may be focusing on multiple objectives, which is fine. Make sure to prioritize them so that as you reach one you can shift your resources to the next.

Unless you know what your income is on a monthly basis, you cannot get a good handle on your finances and you can’t even think about starting a budget. This is usually an easy process. Get your pay stubs and see what you Net out of them. In case you don’t know, that means what you take home after taxes, 401(k) contributions, healthcare and 401(k) loan repayments you may have. Multiply this by the number of checks you get a month (if you get paid bi-weekly, I would suggest multiplying by 2 as you will have a few months with an extra check, but that is a bonus to what you would normally have in a month).

If there are multiple people working for the household (you and your spouse for example), do this for both of you and add this number together. Add in any other income you may have. Possible rental income. Second jobs or side hustle money…whatever is normally coming in on a monthly time frame.

Just as important is knowing what is going out. What are you spending your money on? Add up all of the expenses you have. Rent/mortgage, electric, gas/oil (for home heating), car payments, insurance, cable/internet, any subscriptions or memberships like a gym. Anything you spend your money on monthly. Whatever you do, make sure to include saving money. Don’t get hung up if it is not as much as you want. You can change it later when you are in a better position to save more.

Now you have to get a bit into the weeds. There are many expenses we have that are not recurring or recur irregularly. For example, you need to get your oil changed in your car. You also need to get it inspected. Some subscriptions renew yearly like Amazon Prime or Costco. Make sure to get a very good idea of these expenses and either budget money for them each month (take this total and divide by 12) or schedule them when they are due and budget them for the specific months you need to have them done. Either way, you need to account for these expenses.

NOTE:

I highly recommend you do two things. 1. Make sure you do not leave out money for entertainment. We need to let off some steam every now and again. I am not saying to budget $2,500 per month for partying and take out. Be reasonable, but that also means do not eliminate it. 2. Make sure to have a little “fluff” in your budget. Shit happens. Things break. Don’t be in a situation where a $50 expense is breaking the bank. It does not have to be much but you need to try to look ahead.

Now that you have all your ducks in a row, it is time to start implementing your plan. Don’t be scared. You will be using the one word everyone does not like to say a lot in the beginning. That word is NO. I mean that you will have to stick to the budget once it’s in place and you will get many requests to go over the budget. “Can we get McDonald’s tonight, mom?” or “I want this new sweater. Can I have it, Dad?”. If these expenses fall in the budget, OK. If not it’s NO! I know you may not like to hear that and may have a problem saying it, but this is the key.

You have your income and expenses written out, now you need to keep track of them. I use a simple spreadsheet I created in Excel. There are many ways to keep track from premade excel (or another spreadsheet) templates to programs like Mint (which is free) to simply a log book (old school). How you do it is your business and should be what you are comfortable doing, but once you do stick with it and make sure to use it. Track ALL expenses. Planned and unplanned. Leaving something off of here will only hurt you.

Here is where we have to remain consistent. You have to remember the ultimate goal you created.

Budgeting 101: Additional resources.

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