The Balanced Spreadsheet-Financial News, Budget Advice, Debt help, Financial Tips, and other advice

January 9, 2010

The Financial How to series Part I. How to start a budget

As a New Year is upon us, many people are making their New Year goals and resolutions. In these economic times, one of the more popular goals is to get financially healthy. This goal ties in to a new series from The Balanced Spreadsheet titled “The Financial how to . . . . “. During the month of January I will have posts with helpful hints on how to get started with some basic financial principles such as getting out of debt, building an emergency fund, saving for retirement, and more. Today’s topic is how to build a budget.

I decided to start the series with budgeting because a budget is the first step towards reaching your financial goals. Many people hate using the dreaded “B” word because to them a budget is constrictive or limiting their freedom. However those who do a budget find it more freeing then they imagined and now see it as an essential part of their finances.

How to start

The first thing you will need to do is find a budget format that works for you. A simple budget search on Google or through Microsoft brings up many different templates. I recommend keeping it very basic to start by keeping your categories very broad. For example I just have an entertainment category instead of having a separate category for movies, sporting events, concerts, etc. For those who may not be computer savvy, a basic pencil and paper budget will do just fine.

Determine your take home pay

Next thing you will need to do is determine what your monthly take home pay is. Your take home pay is simply your gross income less what is taken out of your paycheck for things such as taxes and insurance. For those of us who are salaried this is pretty simple as it is the same every month. Those of us who are paid hourly will need to estimate how many hours they will be working for the month and determine their estimated take home pay. The hard part is for those who get paid bi-weekly, because two times a year they get three paychecks in a month instead of two. In this situation, I recommend making a budget based on two paychecks a month and when a three paycheck month comes you can simply use that money to either pay down on existing debt, or if you are out of debt, to save for something special such as a vacation or for Christmas.

Preparing the Budget

After determining your take home pay you are now ready to make your budget! I break down the budget into three main categories: Necessities, Fixed items, and Luxuries

Necessities-Obviously these things are the most important expenses each month and will get paid first in order:

I have food first because if you have enough money to do only one thing each month it would be to eat. Next would be keeping the heat and electric on, followed by your housing, and finally your transportation.

Fixed-These are your expenses that stay the same every month. Common examples could include your phone bill, contributions to a 401(K) or IRA, or car insurance. Also included here are any minimum debt payments such as credit card payments, student loans, or car notes.

Luxuries-Whatever is left goes into the luxuries category. This is where the biggest decisions have to be made. You have a finite amount and usually more wants then what you have money for. In the end you have to decide what is more important to you between eating out, buying clothes, going out for entertainment, or any other thing.

Carrying out the Budget

You have now taken the time to setup and prepare the budget and now this is the most important step! Every time you make a purchase keep track of what category it belongs to. If you reach your budgeted amount before the months ends, you are done for the month or you take away from another category. As you go along you will be amazed at how much money you are spending on certain things. It will also get rid of the question in your head “Can I afford this?” every time you make a purchase because you will have budgeted the purchase ahead of time at the beginning of the month.

How to budget with an irregular income

You might be asking what about those on irregular incomes. Those who are on irregular incomes have a little trickier time doing a budget. But by dividing your budget into the three categories you will be able to prioritize what you will spend your money on. Start with your necessities and go down from there in order until you run out of money for that month. Next month start at the beginning and work your way down until you run out of money for that month. Also for those whose paychecks are seasonal, it would be wise to save money in the good months to help cover the bad months.

I hope you find this helpful. For those of you who have never done a budget before it may seem like a daunting task, but just start and you will get better at it as time goes on. When starting out you will make many mistakes and your budget will change a lot until you can get comfortable with your income. That is ok! Budgeting is best when done with trial and error! For those of us who have been budgeting a while this is a nice review

Next week we will continue in our “The Financial how to . . . .” series with, how to get out Debt.



  1. […] are expected to follow suite.  This is good news for those looking to shave some money off of your monthly budget and getting some extra cash flow for debt payments.  We personally have Verizon so we might be […]

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