# How To Create A Budget In 4 Simple Steps

I still remember the day when I checked my checking account balance and, there staring right back at me, was a negative number! “How did this happen?”, my 18-year-old, college self-asked.

Have you ever been in this position? It isn’t a very good feeling.

But really, how did this happen? The answer is simple, I didn’t have a budget! Hello, I was 18! I had no idea what a budget was! I can’t remember exactly when I learned to budget but since then I have learned a thing or two about tracking my money and creating a family budget.

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## How To Budget Your Money: The Basics

According to Google’s dictionary, “a budget is an estimate of income and expenditure for a set period of time.” In order to create a budget, you need to know all household income (paycheck, etc.) that is coming in and all household expenses (bills, cash, spending, etc.) going out.

### Budgeting Tools

Before you get started you are going to need the following items.

If you are great with Microsoft Excel then, by all means, use that. I am just a paper/pen type of budgeter.

## Step 1: Figuring Out Your Household Income

I find that figuring out your household income is one of the easier numbers to figure out in your budget. Any money coming into your possession can be counted as income. However, I would make sure you are only counting CONSISTENT income streams, the ones you know you can count on every month, like a paycheck.

### Consistent Income

If your paychecks are the same every month then your household income is easy to figure out. Just total all paychecks for the month and that is your household income.

Example: Paycheck 1 (\$1,500) + Paycheck 2 (\$1,500) = \$3,000 Monthly Household Income

### In-Consistent Income

If your paychecks aren’t consistent, meaning a fixed amount every week/month then I would plan for the worst-case scenario by using your average income.

If you are a waitress, I would imagine tips aren’t always steady, one day you may make \$100 and the next \$500. I would take the average of your tips over a 3-12 month time frame and use that as your base. The months you make more, I would set that aside in a separate account for the months you make less.

To figure out an average you would add each months income and then divide it by how many months you added up.

Example: Month 1 (\$2,500) + Month 2 (\$3,000) + Month 3 (\$2,800) = \$8,300 divided by 3 = \$2,766 Monthly Household Income.

If you want to get more of an accurate number I would get your average monthly income using 12 months of figures, but I know that isn’t always possible.

## Step 2: Figuring Out Your Household Expenses

### Fixed Expenses

Fixed expenses are defined as expenses that stay the same no matter what. A fixed expense would be:

• Mortgage/rent payment,

• Car payment,

• Car Insurance,

• Medical Insurance,

• Student loan,

• Cable bill,

• Cell phone bill,

• Etc.

### Variable Expenses

Variable expenses are defined as expenses that can change depending on the month. Variable expenses would include:

• Water bill,

• Electric/gas bill,

• Groceries,

• Gas in the car,

• Entertainment fund,

• Coffee shop trips,

• Etc.

### Tracking Every Penny

If you have zero idea where all your money is going I would suggest 1 of 2 things.

1. Are you a debit card/credit card user?

Print off 3 months worth of bank statements. Start categorizing where your money is coming from and where it is going. Get as specific as you can. Did you spend money on coffee? Oil changes? Movies? Gas station food? Make-up? Groceries? Bills? These are EXPENSES. If you do this for 3 months it will give you a nice average of how much you are spending in each category monthly.

2. Are you are a cash user?

Then you need to track all your expenses for the next 3 months! The process is the same as above, get really specific on where your cash is going.

Once you have an idea of where your money is going you can get a better idea on how you want your budget to look like.

## Step 3: Setting Up A Budget Template

Remember, the bases of a budget is knowing what money is coming in and what money is going out, you completed that step above.

### Monthly Budget Planner

You need to figure out your monthly budget, do your current numbers work (you are in the positive) or not work (you are in the negative).

These examples are for informational purposes only, the money values are NOT our real income/expense numbers. According to Time.com/money the average income for Missouri (which is where I live) is \$50,235 so I am using that has my base take-home pay for this example. This example is also assuming you get paid every other week (bi-weekly payment schedule).

Let’s look at an example. Here I have the monthly household income listed at the top and all the monthly household expenses underneath. I have totaled each section and then subtracted the household EXPENSES from the INCOME.

This example shows a negative balance. Meaning adjustments need to be made in order to live within your means. Chances are that extra \$26.76 is being put on the credit card(s). If you are constantly putting things on the credit card how do you expect to ever pay them off?

I know the norm is to have ALL THIS DEBT, but why? Shouldn’t you want to live within your means? Shouldn’t you want to be financially stable? Living off credit cards will lead you down a path that is hard to come back from, not impossible but hard. I know, we have been there.

When I first learned about budgeting we were NEGATIVE by \$200+. We were putting purchases on a credit card and we were only able to pay the minimum payment. We were falling farther and farther into debt. We WANTED, no... NEEDED out!!

• Getting rid of the cable,

• Stop grabbing drinks from the coffee shop and/or gas station,

• Stop eating out.

If the budget needed a little more overhaul then I would suggest:

• Stopping the kids’ sports for now,

• Cutting the grocery budget by better meal planning,

• Cutting the gas bill by carpooling to work.

After making a few adjustments, this is what the NEW budget looks like! Cutting back even made room to start saving and paying off debt faster!!!

### Weekly Budget Planner

Now that your numbers look good for the month, let’s focus on how each of those paychecks will be spent each week.

Grab yourself a blank calendar.

First, fill in when your paychecks will hit your checking account, in this example the paychecks come into the account on the 11th and 25th.

Next, fill in when each bill is due!

In your notebook create a “Bill Set #1” and a “Bill Set #2” category with the date of your paycheck.

Start with Bill Set #1 and fill in all the bills listed on the calendar that come after that paycheck, stop when you get to the next paycheck’s date. Then move on to “Bill Set #2 and do the exact same things as you did with Bill Set #1 (you will circle back around to the beginning of the month as shown in the example). Your Bill Set #2 will cover a few of the next months bills. *If you need more clarification on this please email me at hello@thesaraross.com.

Subtract each bill set total from the amount of the paycheck for that pay period. This will give you the leftover after all bills are paid, this will help you decide how to budget the rest of your expenses for the month.

Notice in the example that Bill Set#1 has \$1,292.12 left over after all bills are paid and Bill Set #2 has only \$137.12 left over. I think this is where A LOT of people go wrong. They blow through that \$1,200 left over the first part of the month and they are broke and can’t pay for groceries the second half because there is only \$137 left.

With this example, this how I would fill in the rest of the expenses. Bill Set #1 is responsible for 4 weeks worth of groceries and gas! This is where you have to be VERY INTENTIONAL with your money and why a budget is SO IMPORTANT!!

I would utilize the cash envelope system for this situation unless you know you can stick to this budget using a debit/credit card (MOST CAN’T when starting out… because they are so used to using those cards for whatever, whenever, and no matter how much.)

### Budgeting Tools: Budgeting Apps

Like I said above, I am a paper/pen kinda girl. But here are the top 3 apps I am always hearing people mention. These apps will help you track your spending habits and create/track your budget.

### Budgeting Tools: Cash Envelope System

Above I mentioned using a cash envelope system. This system involves taking cash out of your checking account and categorizing it into a labeled envelope for specific expenses.

In the beginning, our family budget didn’t follow a specific program. We just made sure all our bills were paid first and anything extra was just that. We used it on groceries, gas, and everyday purchases. We eventually got serious, made financial goals and got our budget in shape!

And, I know you are just dying to know what happened to that 18-year-old college kid with the negative balance. She got “smart” and added overdraft protection in the form of a credit card. If I could enter emojis this is where I would put {slaps self in face} emoji. That credit card for “overdraft protection” is what took me down the bad path of credit card debt.

If I could go back I would have set up a savings account with \$100 and used that as my overdraft protection. Better yet, I should have learned how to budget back then because it would have saved me a whole lot of money issues in the future.

You live and learn, right! If you don’t have a budget and are feeling spread thin, I encourage you to follow these steps and get yourself on the correct path!

Intentional Living is all about being intentional… so obvious, right!?! But I don’t think most people think of their finances as being part of that life. Intentional Living is ALL ABOUT making intentional choices in EVERYTHING. This includes your finances!

Stay tuned for the rest of my budgeting series!! I will be going over financial goals, the cash envelope system, and the 50/30/20 budget rule!

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