On a Budget: Creating a budget

In this post, we'll examine the basics for creating a budget for your household. First and foremost, if you are married, you and your spouse should be on the same page about creating a budget. If your spouse isn't, there are some great articles that have already been written on this topic (like here and here). 

Fortunately, Alex and I started with a similar desire to create a budget for our household when we got married. Below are the very first steps we took in creating our budget. 

First off, you need to have a budget meeting. This is where you and your spouse pull out credit card statements, bank statements, and paycheck stubs to help you make a plan for your budget. In your meeting, you'll want to do the following things. 

1. Examine your income and expenses

This is the time to pull out the paycheck stubs, write down your income, and then tally all your expenses. Are you running in the red every month, saving a bit each month, or running pretty even? This is also a good time to look at your receipts and credit card statements to get a good idea of how much you are spending on basic things including groceries, gas, rent/mortgage, utilities, and entertainment each month. 

If you're having a hard time determining where exactly your money is being spent, some couples may choose to save their receipts and monitor their spending habits for 2-4 weeks. Getting a basic knowledge of how much you are currently spending is vital in creating your budget. 

2. Create budget categories 

Once you have a grasp of where your money is going, it's time to sit down and determine what categories will be needed in your budget. This will look different for different families depending on your stage of life, but some of our categories include: allowance money, groceries, gas, entertainment, tithe, medical, car maintenance, gifts, rent, utilities, and miscellaneous. Later in this series, I will be going more into depth of each of our categories and how we determine how much to budget in each category, and how we manage the category. 

3. Create a zero-based budget based on your pre-determined categories

Creating a zero-based budget simply means that every dollar has a name, and you know where every single dollar is going whether it be towards bills or towards savings. Once you have your budget categories determined, you want to sit down with your income and assign a dollar value to each of those categories. You must assign every single dollar of your income to something- it may be a bill, it may be an investment, it may be a savings account, or it may be a payment. Regardless of where you assign your money, at the end of your budget you want the income you have and the expenditures/investments/savings you have done to equal zero.

For example in our case... We start with our monthly income and we go through and assign amounts to our budgeted categories including- rent, utilities, internet, entertainment, gas, groceries, insurance, and tithe. If there is money leftover after we've assigned amounts to all our budgeted categories, we'll discuss how to assign this leftover money. Most months it will go straight to savings, other months we'll put a little extra into our pre-set categories (often into the "gifts" category).

Basically, at the end of the month our income minus our expenses/savings = zero dollars. This step can be confusing but is the most important step in creating a budget. Feel free to email me or comment with questions.

How to make a zero-based budget is an article that can help further clarify this process.  

4. Agree to have a monthly budget meeting

Budgets are dynamic- you can't make a single budget and expect that the same budget that applied for December and Christmas shopping will apply for June when you don't have a single birthday. Alex and I have a monthly budget meeting to discuss expenses for the upcoming month. While most of our categories stay consistent, the amount budgeted for each may vary month to month depending on what we have going on. Our income also fluctuates month to month depending on the type of shifts I get at work, so some months we may have a little more to work with, some months we might have a little less. We are regularly tweaking our budget, and remembering that as finances change, so will our budget. 

Now that you have a basic zero-based budget, we're going to talk about the basic categories in our budget just to give you some ideas, and then we'll continue on to the top three areas you can save some money. In the meantime, get out there and get budgeting. 

What questions do you have? What other tips can you offer to someone just starting to create a budget?