by Barry Tadmore

Created on: April 19, 2010

Congratulations!  You’ve decided to make a budget and begin your journey to a fiscally healthy lifestyle!  Simply deciding that a budget is best for you seems to be half the battle.  Once you’ve committed to saving, it can be fun!  But before anything happens, you need to create that budget.  But how?  Here is what my wife and I did when we began the budget process:

1. Compile history.  “You can’t know where you’re going until you know where you’ve been.”  If you’re like me, you use your debit card frequently.  This works to your advantage in creating a budget.  Look at your three most recent bank statements.  Classify each of the expenses into categories – groceries, spending money, date night, cell phone bill, gas, etc.  Determine how much money you spent in each category each month over the last three months.  It might surprise you to learn how much money you’ve been spending, but this is where you can adjust those numbers for the future!

2.  Determine your income.  Look at your most recent paystubs (and your spouse’s, if you’re creating a multiple-income budget) and determine how much money you take home after taxes.  This is how much money you make every month.

3.  Determine how much you have to spend every month.  You’ll find the most success with budgeting when you set a goal.  Perhaps you want to save $200 per month.  If you take home $2,000 per month, you’ll need to spend only $1,800 per month.  The next step in the budgeting process is to set the monthly allowance amounts and you’ll need to know what you need to cut your total expenses to.

4.  Cut expenses.  Maybe you’ve been spending the entire $2,000 that you’ve been bringing home every month.  You need to cut $200 out of your budget.  Where is it going to come from?  The easiest place to cut money out of a budget is at the grocery store.  Shopping with a list, never shopping hungry, buying bulk, and ignoring name brands are a few simply ways to cut costs on groceries.  You might also look at cutting your cable, getting rid of your house phone (if you have a cell phone), lowering your cell phone plan, biking to work to save gas, or refinancing your mortgage to lower the monthly cost.  Either way, you need to find $200 to cut out of your budget.

5.  Use the envelope method.  Many of your expenses stay the same every month so you can just mail a check.  But for any fluctuating expenses, use the envelope method.  At the beginning of the month, take out the money you’ve budgeted for each expense (groceries, gas, spending money, etc) and place them in their own envelope.  That is the amount of money you’ll have to spend every month.  When you’re getting low on gas money, ride your bike.  When you’re getting low on grocery money, eat macaroni and cheese.  The envelope method will allow you to stick to the budget you created and help you reach your goal of saving.

Good luck with your budgeting!

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