Thrifty Thursday: How to Make a Budget

Welcome to step 4, we have already done Step 1, 2, and 3 (here and here and here).  We have already done the first steps to figuring out a budget.  We have:

Figured out expenses
Figured out our income
Made a Spreadsheet

Now, we have to use all that information to make a budget!!!  The expenses on the spreadsheet are just the set expenses like electric, phone, and cable but don't include all of the other spending that we do like groceries, eating out and clothes.  We have to figure out how to get all of the lines to add up and still be positive!!

Do you feel like you have already done all the work and you know where your money is going?  Well, you did the hard work and now you have to make choices.  Do you want to eat lunch out or afford more groceries for home?  Do you have a coffee out in the morning or do you want to save up for a vacation?  This is the simplest and the hardest for most people because you have to make choices!!!

Get a small notebook and carry it with you everywhere you go. This is sort of like a diet and if you want to watch what you spend, you are really going to be watching every penny.  I want you to write everything that you spend with the amount, where you spent it, and the date.  This goes for any money out of your pocket whether cash, credit or debit.  I know when I was dieting, the idea of writing down what I was going to eat before I did it sometimes had me making better decisions.  The same holds true with money decisions!!

Don't go back and write it later because sometimes things fall through the cracks.  Have you ever gotten $20 (or more) out of the ATM and now you have no idea where it went?  I know that I have and I have really convinced myself that I lost it somewhere along the line.  I know that money doesn't just fall out of our wallets so we have to look back and see where it went.  It is much better to do it first.

If it helps, add up at the end of each day or the end of each week to see how much money you have spent over that time period.  Did you have a guess about how much money you normally spend?  Did you come higher or lower?  Are you surprised on how much money you have spent or decisions that were changed?

During the week or when you have a chance, write a list of all your expenses and add to it as you come up with more.  Some of the things that don't happen every month and the things that you do every day.  My list would include:

Groceries
Take out
Gas
Home Repairs
Car Maintenance 
Parking and Tolls
Hair Cuts
Clothes and Shoes
Gifts

Make an estimate of what you think that you are going to spend in each category.  We spend $160 on groceries, $20 on take out, $75 on gas, etc.  Fill in your own amount either based on past spending or your general guess.  Don't worry because we will do a little work to find out what they need to be next.

Determine whether you are in the black or the red on your other spreadsheet so you know how much money you have left to work with.  If your spreadsheet shows that you are in the positive (and you know that you have included all costs), you have a little bit more wiggle room or a bigger chance to put some money into savings.  If you are in the negative, you know that you need to cut your expenses (which is probably why you are going through this exercise in the first place).  Don't worry about this part yet!!

Just to be honest, we currently don't have a budget listed for all these items because we have been doing this so long so it isn't something that you have to do forever.  Normally, the extra bills come on the credit card and we track them that way because we don't use a lot of cash.  I include them all on the one line on my spreadsheet so that the numbers are added in but I suggest that you wait until at least a few years until you do what I do.  Do what I say, not what I do (but I thought that I would be honest anyway).

The exception for us is the groceries.  I track ever penny that I spend on groceries to make sure that I am keeping things under $160 per month.  I could go crazy on spending at the grocery store and it is super easy to spend more than you mean to in this category when you don't have to.  Without writing all of the expenses down, it is hard for me to track the money going out of the month so I have a notebook and a piece of paper that holds all of the grocery receipts.  I total everything up at the end of the month and keep a running total for the year to keep me on track.  If wasn't on track (or a normally frugal person), I would do the same with all of our other expenses.

I hope that this helps you to figure out what you can spend in each category.  Stay tuned for major budget busters and how to cut back in different categories in the coming weeks!!

If you are interested in this post, here is the link to all of the posts in the series:

Figured out expenses
Figured out our income
Made a Spreadsheet
Making a Budget
Setting Your Budget and Spreadsheet
Budget Busters
Take the Emotion out of Budgets