It has become apparent that I have spent a LOT of time talking about using a budget, sticking TO a budget, even WHY a budget is important but I don’t seem to have a post about how to CREATE a budget. There are TONS of websites that talk about how to make a budget, so why should I add to the pile? I guess it’s because there are still people who don’t use them and my post might be the straw that breaks the camel’s back. JK
The absolute simplest way to create a budget that works:
- Write down all your expenses on a sheet of paper. Include items you may only purchase or pay for every other month, quarterly, or even yearly. This list should include category titles such as “food”, “utilities”, “mortgage”, as well as the amount of money you plan on spending for those categories. It is OK to include things like “Caribbean cruise” or “bass boat” to the list, go ahead and dream big!
- Prioritize the list. Put a #1 before the most important purchase you make every month. I’m not telling you what your budget should look like but will help you with the first item: #1 is “food”. No, don’t put your credit cards or mortgage before food, you will never make it to the next billing statement if you don’t eat for 25+ days. Continue to prioritize the list with #2, #3, and so on until every item on the list has a number in front of it.
- Re-write the list in order of priority. Put your #1 category (remember, food) in the first line at the top of the page and then the amount you decided to spend on food next month. Continue until all the items have been re-written in order. It’s still OK if you have 100 items on the list, just make sure that bass boat is closer to #99 than #2.
- Write down your expected take-home pay for the month towards the right side of the page and above the top row. Then subtract item #1 (food) from that number and write the new total. Example: Household take-home pay is $3,500 and food is $600, so the new total you write down to the right of “food” is $2,900 – the amount you have left to budget with.
- Continue to calculate the amount of income remaining until you reach $0.00. If there are more categories, and there should be some diamond earrings or a Disney Vacation on there, then just put the big fat zero next to them.
You’ve spent all your money, on paper and on purpose. It’s as simple as that. Stick to those amounts and you are rockin’ your budget!
Future posts will include links to on-line budget spreadsheets and explanations on why we had to stop before getting to the iPad in prioritized item #53.
If you have a favorite on-line spreadsheet that you use, feel free to post a link for it in the comments. Share the wealth!