“A budget is telling your money where to go instead of wondering where it went.” –Dave Ramsey
What if your money didn’t seem to just escape through your fingers the moment you got paid? What if you actually felt like you controlled your money, instead of it controlling you? What if you had money left over by the time next payday rolled around? What if that next credit card statement made you feel powerful, instead of powerless?
There is a word, an action, that will cause all of these things to come true. Yes, it is the dreaded “B” word. Budget. Once you create a budget, all these things and more can come become realities in your life.
(By the way, if the word “budget” totally overwhelms you from the get-go, come join us on Facebook in the Penny Steward Mama Accountability group, and get some motivation and encouragement regarding your finances! You can join us here!)
So how can a budget make you so powerful?
The budget will TELL your money where to go. Instead of leaving your fingers the moment you get it, you get to actually distribute the money to whatever your budget decides on.
Instead of feeling as though you have no money all the time (even shortly after you get paid) or feeling guilty when you spend money on anything, you will know where the money is going and will be able to start making decisions on whether it not it keeps going there.
Instead of feeling defeated by that credit card statement and the amount owed, you can start taking steps to pay that balance down, and eventually, finally, get rid of that card that is such a burden on your everyday life.
After you create a budget, you will almost immediately realize this power!
Where do you even begin to create a budget?
First, if you are married, decide which spouse is the most interested in getting a better handle on their money or who is the most motivated to actually sit down and go through the numbers. That person (or you, yourself, if not married) needs to sit down with paper and pen, computer and/or smartphone, and any bills, bank statements, credit card statements, loan payments, etc., all in one place. They should also be in a good mindset to get their finances organized!
You can complete these steps all at one time, or you can split them up and complete one a day. Figuring out your expenses will be the most time-consuming by far, but it will be very worth it once you know exactly where your money is going.
Let’s dive in and get started!
1. Determine Your Income
The very first step to create a budget is to total up your take-home pay. If you are salaried, this will be super easy. Write the DATE you get paid and HOW MUCH. Write it out for the next two months. If your income varies each time (commission-based, etc.), write the minimum amount that you are pretty sure you will get paid. You want to have the most accurate amount that you are practically “guaranteed” to get paid. If you have any amount that you pay off the top of your take-home pay (like a 10% tithe, or anything else that would technically decrease your pay before you “take it home”), you can subtract that as well.
Before you set up your budget, you must decide if you want to budget monthly, bimonthly, biweekly, or even weekly.
It will probably be easiest to budget based on when you get your paycheck, especially since most likely you’re already using that method to organize and pay your bills. Once you have decided whether you want to budget monthly, bi-monthly, biweekly, or weekly, let’s dig into your bills and expenses.
2. Write Down Your Fixed Expenses
Now you need to discover what fixed expenses you have going out every month, the amount, and when they need to be paid. This includes any bill you get that has a due date. It would include the electric bill, water bill, mortgage or rent, credit card (we pay ours off in full every month, but you may put the minimum payment if this is how you have been paying it), home insurance, auto insurance, cable bill, trash pickup, cell phone bill, home phone, health insurance (if it doesn’t come out of your paycheck), disability insurance, life insurance, monthly prescriptions, monthly subscriptions like Netflix or Hulu or magazine subscriptions, childcare, and anything else that is fixed monthly.
Anything you pay quarterly, biannually, or annually needs to be included as well.
If you pay annually, divide the total by 12 and that will be your monthly amount. If biannually, divide it by 6 and that is your total monthly amount.
Make a list of all of these categories with the NAME OF BILL, DATE DUE, and the AMOUNT DUE. If it is a quarterly, biannual, or annual payment, then you can put the date on any day you like along with the corresponding monthly amount. The important thing is just to make sure you definitely add these bills that aren’t due every single month, but that will be due at some point in the year, so you don’t have a surprise bill pop up when it is due!
Remember to take into account any autodrafts you may not actually sit down and pay each month as well as any paper bills you pay each month. Try not to leave anything out!
**Grab some super cute Savings and Bill Tracker printables here! Trust me on this one! If you need some motivation to stash some savings or even struggle with keeping your bills organized, this is likely to make all the difference 😉
Go ahead and total your fixed expenses per month and compare it to your monthly income. The remaining amount (income minus bills) is the money you have left for variable expenses.
Next, as we continue to create a budget, we will get into the variable expenses.
3. Write Down Your Variable Expenses
The only thing left is to determine the remaining variable expenses that you have. Variable expenses are ones that you have some control over the total monthly amount spent. These include food (groceries and restaurants), gas, clothing, entertainment, cosmetics, toiletries, hair care, “fun money”, car repairs/maintenance, dry cleaning, medical copays/deductibles, babysitter money, school tuition, school supplies, etc.
Anything else coming up this month needs to be added here. It could include a child’s birthday party, a school event that requires extra cash, extracurricular activities, etc.
Look ahead at your household calendar and see if anything on the calendar requires extra money this month. Add it to this list.
I know you’re probably getting tired of figuring out all this stuff, but you are so close to finishing! Hang in there and don’t give up just yet!
This list of variable expenses should include the CATEGORY or ITEM and the AMOUNT needed for the month (or whatever time period you originally decided to create a budget for).
For your very first budget, you will have to estimate. If you want to get really accurate and have the time, you can go back through bank statements or receipts to get a better overall picture of what you are spending on things every month. Don’t spend too much time on this, though. Over the next few months, you will have a better idea of how much you need for each category. It will all come together if you stick with it!
Now you need to compare your list of variable expenses to what was left after subtracting your bills (fixed expenses) from your income. Does it look like you bring home enough to live below your income? If yes, then that is great! If not, we will work on it!
4. Meet with Your Spouse after you create a budget
Now that you have all of your numbers written down in front of you, it’s time to go over it with your spouse. Pick a time when you are both in a good mood, the kids are in bed, and agree that you both are willing to look at the household money objectively, not blaming either person for where you are at today. This is so tough! But please talk this through beforehand! Be clear that communication must be open, yet blameless, and be willing to extend grace to your spouse. This is extremely important!
Discuss the numbers you see on paper, how you think things are going financially, and what you would like to accomplish financially in the future. Let the person who did NOT write out the numbers chime in and give their opinion, and be open to what they are saying.
You both will see things differently, and that is okay! God gave each of you to each other to complement each other. So get creative and figure that out when it comes to budgeting!
The saver will have to be willing to spend more than they want (as long as your budget can afford it) and the spender will have to cut back a little to save for some more important goals that you both work together to achieve. And, sometimes, your roles may reverse, and that can surprise you! But, don’t worry, it is a good thing, especially as you create a budget!
5. Track Your Expenses
Starting today, begin tracking your expenses. This is a new habit that you (and your spouse) will need to begin immediately. It truly takes only seconds to input an expense as it happens. You can keep track of it on paper or on a digital app. 
I currently use the Mvelopes app since I paid for a lifetime membership years ago, but I have dabbled with Every Dollar and absolutely LOVE the simplicity and ease of use. The basic app is completely free.
Either way, as long as you are tracking your expenses, you can begin to see if the numbers you came up with for your variable expenses were reasonable or not, and you can begin adjusting accordingly. Your budget may need to be adjusted or your spending may need an adjustment, or both!
Tracking expenses will help you create a budget much easier and more efficiently in the future. And you don’t even have to create a new budget each month. Just tweak the last one for the upcoming month!
6. Set Your Goals
Now that you have a very realistic overview of your money–what is going in and what is going out–it’s time for the most fun part of budgeting! Time to set some money goals and live your dreams!
Do you have money left over after subtracting your expenses from your income? Yay! You get to decide what that extra money can go toward! It can be used to pay down debt, save for a vacation, give generously to a worthy cause, or save for retirement! You can choose anything! The most important thing is that you set a goal (WITH your spouse, if married) and work toward it. For ideas about what to do next with your money, check out the post Your Step-By-Step Plan for Financial Success.
If you didn’t have extra money, then it’s time to dig deep and figure out what needs to change.
Do you need to make more money? What can you do in order to make that happen? Do you need to spend less? How can that be accomplished?
Ideally, a combination of the two (make more and spend less) packs the most powerful punch.
Mission Accomplished–You Created a Budget!
There you go! You have created your first budget and you know how to keep it updated by tracking your expenses either on paper or using a budget/expense app. Congratulations! I’m so proud of you! You can begin working toward your goals and dreaming of an even better financial future!
Please remember that your first budget will not be perfect. It usually takes anywhere from two to four months to get it fine-tuned, and even then you still have to adjust and plan for variable expenses that will change each month.
I seriously can’t wait to hear how creating your first budget went. Let me know how the “budget meeting” went with your spouse, and if/how the two of you were able to come together as one on the topic of money. Also, let me know if there were any surprises as you viewed your take-home pay, fixed, and variable expenses. Were your numbers around what you expected? How did looking at your money in such a detailed fashion change your perspective on your finances?
Congratulations on taking this huge step to creating and achieving your financial dreams! The more persistent you are at preparing and sticking to a budget and the longer you do it, the closer you will get to seeing those dreams become a reality. I can’t wait to see your dreams come true! And I truly believe they all can come true if you start with the budget.
As always, continue to steward intentionally.
Heather
P.S. Come join the discussions on Facebook in the private Penny Steward Mama Accountability Group! We would love to have you!
Such a useful and practical list! I believe too that it’s super important that both you and your partner have similar money goals (or outlook would probably be a better way to express it) because if they differ too much, that can cause real problems elsewhere in the relationship. And I agree, not an easy discussion to have but necessary (I’ve seen several friends break up over money or financially-related issues which may have been avoidable if they’d spoken up earlier, rather than leaving it til the damage was done…)