Creating a Simple Budget

(OR One B-Word Leading to Another)

Here we are at week five and hopefully settled into a beautiful and nicely organized home. The next step in creating a system of successful home management is to develop routines for the day-to-day life taking place in our homes. A substantial part of this is setting up and sticking to a budget. 

Are you already feeling the creeping guilt of bad spending behaviors? Don't!! Instead, think of a budget as a helpful tool—nothing more. It's about balance, not being bossed around. Ultimately, budgets are just guidelines, not absolute rules, which quickly become disheartening.

As with my post about moving, budgets are much easier 
to become proficient at while you’re young and have relatively simple financial demands. For us newlywed, non-parent, non-homeowners, there is no better time to tackle budgeting than now! 

To begin, take three months and track your typical expenses. No crazy purchases and no unusual penny-pinching...just 100% normal spending for three months. Write down every single transaction, and group them into categories. Some people prefer to physically track these in a binder, but Strider and I have found that a digital version is more accessible for us and thus, more likely to be used. Try starting with this basic budget spreadsheet:

BASIC BUDGET TEMPLATE (for Numbers)
BASIC BUDGET TEMPLATE (for Excel)

Plug in your tracked expenses, then add all incomes across the top. Whether you have a fixed salary and this number will always be the same, an hourly wage that varies check-to-check, or a mixture of both, its best to list everything for each month regardless.

Under expenses, list your spending categories, starting with monthly essentials like Rent and Utilities, then moving down to Cell Phones, Groceries, and Entertainment. Make your categories as broad or as specific as you like, just don’t leave anything out! If you have split cell phone plans or car loans, list those separately; if you share a plan, more generic categories may be sufficient.

Once you’ve compiled your three months of data, you should have a fairly accurate assessment of how and where your money is going. Now it’s time to analyze it all. Just looking at spending in a larger view like this can alert you to areas requiring immediate attention. It can also raise opportunities to cut costs that although not “too high” may be unnecessary. For example, many people are choosing to drop their cable bill for a lower-cost, on-demand subscription services such as Netflix or Hulu. Creativity with cutting costs is a fun challenge with huge rewards!

Regarding housing: It is recommended that your housing costs be no more than 25% of your total income. If your expenses in this category are too high, you may need to consider whether your living situation is manageable in the long-run, especially if you are renting and have the option to look for a lower-cost place. 

Considering utilities: aside from seasonal fluctuations, if you see unusual activity in your utility bill, you may need to look for a water leak or consider changing your heat/AC settings—small adjustments in temperature can have big savings on your bill. For specific savings information, the Dept of Energy breaks it all down here.

Now....you have enough data to see your average spending and you’ve thought through creative cost-cutting options, time to budget! Create estimates of what you think are reasonable amounts for each of your expense categories. List these projections next to your actual expenses. Many people find the “Envelope System” helpful for sticking to budget totals. At the end of the month, record your actual expenses and see how you did at coming in under target. If you come in under total, put a portion of the difference in your savings account.

Source

It can also be helpful to track longer-term loans/debt at the bottom of your budget sheet. Though we make a car payment each month which is listed under our monthly expenses, we also track the balance of the loan at the bottom so we can actively see the debt going down. Watching the numbers get smaller is a great motivation to keep paying down debt. Track savings accounts as well—this is a great motivator to continue setting funds aside each month, no matter how small the contribution.

When it comes to financial matters, sometimes professional help is a necessity. Consider setting up an appointment with a trustworthy accountant to go over your basic financial situation and to look over your estimated budget. Even if just for a consultation, they will be happy to see you starting off on the right foot and may provide helpful tips for your specific circumstances. Luckily, we have a financially wise family connection who, although quite busy with tax season, took a moment to recommend the following as some general pieces of advice:

     - Spend less than you make. Period.

     - Stay organized and know how and where your money goes. 
       As Dave Ramsey says, “Money is active...it moves from those not managing it to those who do.”
     - Don't overlook the little things. Speaking as a green-apron-wearer, those daily lattes really do add up!

     - Pay off debt as quickly as possible by always making larger-than-minimum payments.

     - Limit credit cards: 1-2 with low interest rates help maintain good credit, more run the risk of mismanagement.

     - Plan your financial goals (ex: We will pay off our car loan by December 31.)

     - Learn to wait & save for big purchases—no financing! If you can’t afford it now, you don’t need it now. 
       (Necessities/emergencies are a different conversation.)

     - Review insurance policies periodically (2-3 yrs) to see if there are more affordable plans you qualify for.

     - Take advantage of matching or perk programs available to you through your employer or bank.
     - Treat yo self! (AKA giving yourself an allowance) Knowing that you have even just $5-10 a week for fun, 
       hobbies, lattes...whatever, will help you feel more diligent in sticking to the budget in other areas!

source

Tons of excellent, additional financial resources are available by Dave Ramsey.

Apartment Therapy also share some helpful tips and resources.

There are also a number of budgeting websites and apps, maybe even some through your bank—take time to look in to these options if a digital tracking method would be helpful for you.


Now that household money is on a path to order, don't miss next week's post on how to tackle the avalanche of home paperwork we all know so well!

This post is part of the Modern Simple Homemaking series.
To learn more about this series and see other posts, click the button above.