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How To Set Up a Budget

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Happy New Year! Tis the season for New Year resolutions in the food, finance, and fitness areas (conveniently all the topics I write about at Budget for Health!). As I look back at all of the financial goals we accomplished in 2012 it makes me excited about helping others pursue and achieve financial freedom in 2013. The biggest factor in our success was setting up a tangible budget. Not a “we should watch how much we spend on groceries next month” kind of budget. I’m talking about a real budget with real numbers that will show spending trends and track our expenses.

When Dave and I got married in May 2010, we read Dave Ramsey’s Total Money Makeover and set up our own version of a monthly cash flow plan in Microsoft Excel so we could set up formulas to add and subtract where needed. We first determined an allowance for each “fixed” category that would be paid every month and then the “variable” categories.

Fixed: tithe, student loans, taxes, rent, health insurance, phone bills
Variable: entertainment, groceries, clothes, vacation savings, utilities, gifts

Here’s how a sample month looks (I’ll use random numbers because the cost of living varies so much from place to place):

Income: $4,500
Fixed expenses:

Taxes (15%): $675
Tithe: $450
Rent: $850
Phone: $100
Retirement: $250
Health Insurance: $200
Student Loans: $1200

Remaining: $775
Variable expenses:

Groceries: $300
Entertainment: $100
Vacation: $100
Utilities: $25
Gifts: $50
Gym membership: $100
Miscellaneous: $100

We tweaked the budget to allocate every dollar and finally agreed upon a set budget to live on. We revisit our budget frequently to adjust areas we’re overspending and reallocate the money accordingly. My husband and I had a pretty strict budget when we were paying off student loans so that we could throw every extra penny we could toward them. Since paying them off we’ve cut ourselves some slack and allowed a little more elbow room in categories like entertainment or clothing.

This method works for us but I know that just like diet and exercise there is no cookie-cutter formula that can be used by everyone. I recommend finding a method that works for you, whether it’s a weekly, monthly, or quarterly budget. January is the time for fresh starts so why not get started on managing your money? The ultimate goal is to control your money so it doesn’t control you!

What methods have worked to help you budget wisely?

This has been a guest post from Jessica. She is a Registered Dietitian and shares practical, useful tips on food, fitness, and finance. Be sure to subscribe to her blog, Budget For Health.

Budget Money

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

13 Comments

  1. I had at hard time at first when I set up my budget because I had no idea how much I was spending in the variable areas. I found an expense tracker online, input my spending information (from bank statements and online banking records) from 3-6 months and then created the budget. I still use an expense tracker monthly to make sure I’m staying on track.

    • It took a few months to tweak our budget at first. By then we could calculate what the monthly average was we were spending in each category. The site Mint.com is great tool if you don’t want to use an excel sheet.

  2. Congrats on creating the budget! I used Dave Ramsey’s budget sheet myself. Giving every dollar a name, and creating multiple savings accounts is the only way to go in order to perfect the budget. It took us about three months. My wife and I are constantly tweaking, but for the most part our budget looks almost the same every month. It has really alleviated a lot of stress in our family. Using the cash envelope system in tandem is also the way to go in my opinion. Great post!

    • Thanks, Tony! We never ended up using the envelope system but we’ve been good about not going over in the flex categories. Since any extra income goes toward saving for a home, I just subtract the amount we went over from the amount we put in savings. Not everyone can do this because it would be easy to fall into a habit of going over every month but we’ve been good about these rare occurences!

  3. I start with savings first and everything else has to fit in. I make my savings my priority.

    • Great plan! Student loans were our top priority until they were paid off and now we’re pouring in to our savings every month.

  4. What has helped us to set up a budget wisely? Well, that would have to be a combination of necessity (single income) and courtesy of the tax laws that provide us with a lot of write-offs.
    Great guest post Jessica!

  5. great post Jessica! I use a mobile phone app to help me set up a monthly budget. It helps to keep me on track even when I’m on the go. I just check things out whenever I am going to buy something.

    • Can I ask what app you use? I’m sure other readers would benefit from using it as well. Having immediate access on a smart phone makes tracking a budget much easier instead of saving every receipt and sorting through them.

  6. Hi Jessica,

    Setting up and sticking to a budget is really a difficult task. Especially for moms like me, I make sure to spend first on the needs rather than on the wants. I also try to look for good deals and sales to save more on the expenses.

    • I’m always on the look out for deals. You’ve probably got your budget set up in a wise fashion if you’re prioritizing needs versus wants. Are you a coupon-clipper or do you just hunt for sales?

  7. I don’t think of my savings as a part of my budget, but I guess technically maybe it is a part of my budget since I always “pay myself first”. My savings comes out and then I pay bills etc. Budgeting is something I never used to do, like Dave says, when you make a budget it’s like you get a raise because you know where your money is actually going.


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