Do you know you need to create a budget but have no idea how to start? I’ve been there. Out of college in my first full time job, I had no idea how budget my money. My husband and I just bought a house and going over expenses was just not something we even though about doing. We were hit with a ton of things that NO ONE budgets for (a story for another time), but we didn’t even budget for our planned expenses.
I worked for a property management company where I had daily access to budgets for entire commercial office buildings. While reading through these budgets for my job, I had a light bulb moment that, if we were budgeting to the dollar for 500,000 square feet of office space, I could make a budget for my household.
Even after this realization, I wasn’t immediately budget crazy. What really got me to be serious on reviewing our expenses was starting to pay for daycare when my son was born and shortly after dropping to a 1 main income household when we decided I would stay home with him. Here’s a step-by-step guide on how to get started creating a budget for your family and be realistic with your financial goals.
1. Review the Last Few Months
This is the most time consuming part of starting a budget. Look over what you’ve spent the last few months. Print out your ledger from your banking app and review EVERY single item. Don’t forget credit card spending if this is something you use. If not, more power to you, but this tends to be a missed spot when budgeting simply because you want to forget about it. If it’s not on your debit card it doesn’t count, right? WRONG!
The rest of this post will assume you did this step first, but take a break from it if it seems too overwhelming. It doesn’t necessarily need to be done first, but it’s a great reality check when you really know your expenses, it will make the rest of the budgeting process easier as well. Make a valid effort to run through your spending first but, if it makes you want to run as far away from budgeting as possible, wait until you have your budget together to review your reality.
2. Make your spending categories
While looking over your purchases, start to categorize your spending. Looking over your expenses first is really helpful for this step. You can be as broad or as narrow as you wish to be here. Do you need to know how much you’re spending at convenience stores, or can you title that under groceries? This is completely up to you. Make this YOUR budget and make it make sense to you.
3. Calculate your income
Your income is how much you can afford to spend and save each month. Knowing this number is extremely important. Calculate this as your take home pay, you can look into 401k investments, insurance, etc later.
4. Calculate your fixed expenses
Your fixed expenses are things that are not going to or can’t change in the near future. Think about your mortgage, car payments, debt payments, and daycare costs. I like to include my electric, phone and cable bills as an average in here too because I know I know I have to pay it and have already negotiated the lowest rates. If you haven’t done this recently, save those expenses for the next step.
We saw that we were paying a ton of money for cable, so we canceled and switch to subscription services like Hulu. I found Hulu had the biggest variety of shows included and is very easy to navigate.
5. Calculate variable expenses
These are expenses you have the ability to change or eliminate. A few examples would be streaming services, cable, phone service, groceries, gas, and shopping. It is very important that you’re looking back at your spending history when coming up with budget numbers. You might think you only spend $400 a month on groceries, but is that the reality when you really look at your transactions? I know it wasn’t for us and seeing what we actually spent helped me be realistic with these numbers.
6. Find your spending weak spots
What is coming up on your spending history and you think “wow, I really spent that much money on that this month?!?” That’s your weak spot. For us, this is 1000% groceries and miscellaneous expenses. When we first started budgeting, we had a huge reality check on our grocery budget and just random stuff. Now, I put a waiting period on purchases and stick the money I want to spend into savings. If I like it there, that’s where it stays. If I can’t stop thinking about that item, I’ll move the money and purchase it.
7. Automate your spending and saving
We live in a world today that you can automate almost anything: take advantage of it!! Making payments automatically leave your account makes it impossible to forget and, if you can coordinate them around your paychecks, you’ll have a better idea of what you have for those variable expenses.
We automate our mortgage to leave our account biweekly on the same day my husband gets paid. It spreads out the payment AND we fit in an extra payment to our account each year on the months he gets paid 3 times instead of 2. We also automate our savings for emergencies, and our child’s investment account. It gives me peace of mind knowing I’m setting aside funds for our son’s future every month without actually doing anything.
8. Review every month
You can go through the whole process of setting up a budget for your family but if you don’t look back each month, there’s no point. You need to reflect on what you were planning to spend versus what you actually spent to hold yourself accountable. This is where most people fail, don’t be most people. Plan time at the beginning of each month to sit down and review your budget to actual expenses. Look over your transactions. You should know what each one is for, question it if you don’t.
I really like the detail in this budget planner, it allows you to track all your big expenses, debt, and goals. It also has sections to hold you accountable when reconciling each month. If you don’t meet your goals, there is a section where you can write down why.
If you follow these steps to create a budget and hold yourself accountable to it, you’ll be well on your way to your financial goals. Keep in mind, this process takes a lot of continual effort and your first few months will be full of mistakes. Is there any other steps you would take when creating a budget? If so, please leave them in the comments section below!
