We’ve covered what it takes to start living on a budget and how to plan for unexpected expenses. Now it’s time to start creating your monthly budget. What you need to do is make a list of the following:
1. What income you have coming in over the upcoming month.
2. What expenses are going out in the upcoming month.
Can I be totally honest? This process just about killed me. It was tedious and takes a lot of time and created a bunch of tension between my husband and I. We had to wade through utility bills, insurance payments, and credit card bills plus try to figure out exactly how much it cost to feed our family, keep the car running, and our house warm.
On top of that, we had to think through what expenses were coming up (property taxes, car repairs, school tuition, vacations, and home maintenance) and how we were going to fund those items that we knew were coming up.
As if that weren’t overwhelming enough, we had to figure out how we were going to pay for our credit card payment (which was what we spent to live last month) while paying cash for current expenses. So for a couple of months, our actual out-going expenses increased dramatically.
And the worst part was I do not like details. At all. Every time we worked on our budget, I would be sprawled across the table mumbling, “I just don’t care anymore.” The only thing that got us through those first months was me recognizing that I suck at this and it was my job to just follow him because budgeting and spreadsheet making and details is what he’s good at and my bad attitude at any point could derail the entire thing.
So, instead of dragging my feet and trying to lure him away from his computer with snacks and past episodes of Lost (it was 2006), I sat with him and helped him think through if the car repair budget should be $75 or $80 when I really wanted to scream, “I couldn’t care less, just let me out of here!” Because I knew that this process was necessary and if I didn’t play along, I’d have to do it myself and I’d rather watch Keanu Reeves movies on loop than create a budget from scratch. (Keanu Reeves is my equivalent of “gouging my eyes out.” He’s a terrible, terrible actor.)
Boy, I’m really selling this budget thing, aren’t I?
Please hear me though, the hard work is totally and completely worth it. Within four months, we had a working budget that allowed us to pay for everything with cash and adequately prepare for future expenses. And that work has brought us incredible peace and unity over finances for the past ten years. Here’s what else this hard work brought:
- Six months of expenses saved in our emergency fund
- A robust savings account that we use to pay for one-time, yearly, and unexpected expenses
- Two fully funded retirement accounts
- Zero arguments about money
- Zero debt
- Complete peace about where our family is going financially
These things came about not because we got new jobs or got an inheritance or Oprah paid off our mortgage or we found a cool new budgeting app. They are a direct, unequivocal result of creating and living on a monthly cash-based budget.
The goal of the monthly cash-flow budget is to spend every dollar on paper before the month begins. You’re simply looking at how much money you’re getting in the upcoming month and deciding how you’re going to spend it.
So, how do you start? It’s pretty simple. Bust out Excel or a notepad and start making a list of the following:
1. Your income — what money do you expect to come into your home next month?
2. Your monthly expenses — what payments will you be making next month?
Pay special attention to the “next month” part. We are NOT generalizing. What is happening with your money in “insert next month here”?
3. Your upcoming expenses — what things will you have to pay for in the next year? Write down the cost and then the month you have to pay for it. Count how many months from now until then, divide by that number, and add that to your savings portion.
DaveRamsey.com has excellent basic budgeting tools, including simple spreadsheets that will facilitate your budget creation. These are the only tools my husband and I used to create our monthly budget in 2006.
My rule with anything is simplest is best. If you can create a budget that works with a worksheet, do it. Don’t use a complicated piece of budgeting software unless it’s absolutely necessary. This is especially true if one of you is super laid back. You don’t want learning new program to be the reason to bail on the process. I can barely make myself open our spreadsheet in Google Docs, so just making sure I input the numbers in the correct Excel box is about enough to send me over the edge.
One piece of advice: If you’re the lover-of-all-things-
Obviously, this is a 30,000 foot overview of how you start creating your budget. At this stage, you’re going to spend the majority of your time gathering information and making simple decisions: How much money do we spend on food? On gas? What are our bills for the upcoming month? What are our debt payments? And if you have extra money left over after you’ve paid all of your bills and expenses for the month, what can you do with it?
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