Starting a budget

Dave just boarded an airplane to Washington and unfortunately (for me at least) he did so with my laptop in tow.  Which means I have no idea where we stand budget-wise since I keep it all on that computer.  I'm way behind in posting receipts as well, but I can assure you, WE ARE DEFINITELY IN OVER OUR HEADS.  This may go down as our worst month ever!

Instead, today I want to talk about the most common question I seem to be getting lately: how to start a budget.  The way I came up with mine was to simply go back through my bank statements for several months and carefully look at what we spent.  The hardest part for me, frankly, were the Target expenses because I can spend $40 there or $340 there and if I don't have the receipts, I have no idea what I bought or what category it should go under.  So if you don't have any receipts, here's the best way to start:

1) Immediately start saving every. single. receipt.  PUT THEM IN AN ENVELOPE.  Even the receipts for things you buy with cash are very important.  If you keep the receipts, you will always know where your money went.

2) Using the receipts, begin itemizing your expenses.  I usually do this BY HAND.  Just a yellow tablet and a pen.  I think you've seen my budgeting handiwork before, but it looks exactly like this:

It's probably easiest to start with the categories that I've been using, but if something doesn't fit (like dry cleaning or hair salon expenses, both of which I rarely spend any money on), make up a new one. 

3) Once you've itemized a receipt, PUT IT IN A DIFFERENT ENVELOPE.  It's a two envelope system - NEW and OLD.  That way you'll never accidentally count something twice.

4) Once you get to the end of the month (or week if you're so inclined), total up your categories and try not to get too queasy about how much you spent.

5) Repeat steps one thru four for several months until you get an idea of your expenses.

It's pretty simple, really.  But if you are a good budgeter and you do it differently, by all means SHARE YOUR METHOD.  I'd love to hear about it!

Comments

[Kathryn]

Oh my god, thank you for this.

My question is, though, how do you decide if what you're spending is reasonable? I mean, the purpose of a budget is to keep you from spending too much money, right? How do you know how much is too much?

-Kathryn

[Kate]

You have shared a very good method for people to really know how much they're spending.

I created my budget from a different starting point. When my husband died (and our income went with him - thus creating a situation where what we had been spending in the past just didn't matter) I started with the new monthly income amount and one-by-one subtracted the necessary bills (mortgage, car payment, etc.) in order of importance. Once these were handled, I divided the remaining few dollars into "gasoline", "groceries", "clothing" etc.

[Loni]

This is great info, and it will be fun to watch this as you continue to share! Have fun at BlogHer . . . I am jealous! :)

Another ClubMom Blogger,
Loni

I'd return that swing and pick up the fisher price ocean wonders swing, its wonderful it swings side to side and you can switch it to a normal back and forth, it also is wonderful for newborns with the support for their heads.

[Amy]

I use an Excel spreadsheet -- very simple system.

In the top half, I put in our monthly income -- gross and net. I use the total net as our monthly starting point.

Below that I have a series of categories, pretty much ranked in order of importance, that represent our every month expenses. Mortgage, property taxes, babysitter, commute to/from work, food, utilities, kids, dining out, vacations, cleaning woman, etc, etc. These sum up at bottom and deduct from total monthly net income so you see what is left over. At very bottom, we assign each of us an "allowance" that covers our personal expenses that month (such as lunch at work, haircuts, clothes, etc). What ever is left over of monthly income after all of these expenses is dedicated to savings.

Now, in terms of trying to figure out how much each of those categories should be, some, like the mortgage and taxes and commute, are fixed, so its easy. For utilities and the like, I average out over the year. For discretionary entries like allowance and dining out, I try to set a realistic amount based on what we actually spend, but also tweak the numbers so I can see what increasing or decreasing them does to the bottom (i.e., savings) line.

It probably sounds complicated typing out like this, but it was actually quite easy to set up and I really like being able to see everything on one sheet AND have the ability to change categories and instantly see the net result on our savings.

Finally, we update this about every 6 months to account for any changes in income and expenses.

[Jeni]

Thank ya. I am doing this method this month. I struggled all last month categorizing my spending with Microsoft money. It was kinda fun but having to recall the details of the 130 dollars at Target, 46 at Walgreens, 89 dollars at Walmart..... Impossible! I was too lazy to find the the receipts at the bottom of my purse. I once tryed just recording in a note book everything I spent in a month. Again, the Target receipts killed me. I love this blog and am a long time Mandajuice fan. Yay for you.

[Elizabeth]

I have called my credit card company, student loan lender, charity, and bank; and asked them to deduct (or bill me) from my account on the 14th of the month (since my check is direct deposited on the 10th). Then, on the 15th, I tithe, and see how much left I have to work with. It helps me to know that I have $200 to deal with this month (instead of thinking that I have a whole paycheck to blow).

It was really great to meet you in San Jose.
Take Care.
Elizabeth