Budget Building Basics for…Everyone

Oh, the dreaded “B” word - budget. Just the word alone conjures up images of sitting around a kitchen table with bills in one hand and a piece of paper with a bunch of numbers in the other.

It makes us imagine arguments that never get solved and being told that we have just too much month at the end of our money. We have told ourselves over and over again that a budget is a bad thing and that if we’re on a budget that we have to become a recluse that eats nothing but leftovers and pedals a bicycle to and from everywhere they want to go. Also, no vacations!

Well, none of that is even remotely a reality. The word budget means this: an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a group of people, a business, a government, or just about anything else that makes and spends money. That’s according to the online site, Investopedia.

Unlike Congress, your goal is to have your expenses meet your revenues. In other words, there is no month left at the end of your money and you need to think backwards.

What is your revenue when you’re trying to budget, you might ask? Well, that’s going to be your income from employment and any other means that you make money.

Your expenses are the trickiest side of this because we’re humans. It’s not that we are intentional about it, but we tend to forget entire categories of expenses or we don’t know exactly how to categorize them.

Here enters the zero-based budget. This type of budget starts with your income and you basically spend your money before the month even starts. You want to talk about central planning!

It’s scary the first time or two that you do it. I’ll absolutely admit that. However, it’s not science and it honestly isn’t even about the math. A budget is about your behavior.

You might be thinking that makes no sense, budgeting is about math and numbers and all of these formulas and equations to tell me what I already know. If you’re in that camp, just stick with me and it’ll all make sense.

Step number one is to determine how much money you make each month. If you’re married, that is the income for you and your spouse. If you’re single, that’s your income. For those of you who need more specifics, this is your net income which is what goes into your bank account. Let’s get out a sheet of paper and write that total at the top of the page. While you’re at it, let’s write it at the bottom of the page, underline it and put a zero under it.

Now we need to categorize expenses. These are the main categories for your expenses: Giving, Savings, Housing, Food, Transportation, Personal, Lifestyle, Health, Insurance and Debt.

Giving should be a habit, not a headache. This accounts for your tithes and offering at church, if you attend, and also charitable giving through organizations and individual charity. This is the first category.

Below that, add another category for Savings. Put something away each month for savings. Your goal should be 10% of your income to start building that emergency fund.

The next item on the list should be the biggest net total and that’s Housing. Here is where you add in your utilities, and your rent or mortgage. That number should be about one-third of your overall sum.

Next is Food. It’s an essential to every day life and should account for another 10% of your budget. This includes groceries and restaurants.

Next up is transportation. This doesn’t include car insurance, but does include fuel and ongoing maintenance. Maintenance is one item that is always overlooked, but is the one item that causes the most headaches for people who own a vehicle and drive it around. You’ll always need new tires, brakes, oil changes and more. Budget for them, even though they aren’t monthly expenses and all of the sudden those expenses won’t hurt you as much when they show up.

After transportation is personal. This includes items like your cell phone, clothing and two often overlooked but important budgeting lines. Those are “Fun Money” and Other. You don’t want to be a recluse, humans are social by nature. Put some fun money in there so you can get out and about and enjoy yourself. The line for Other is for things that just don’t seem to fit another category.

Lifestyle is our next space. This category includes child care, pet care, entertainment, vacations, education and subscriptions. Vacations should always be planned for in advance. Don’t put them on a credit card.

Health is next and insurance is to follow. Health is for your gym membership, medicine and vitamins and doctors visits. Insurance is pretty self explanatory but before you jump in and say, “wait I don’t pay for my insurance monthly,” guess again. Let’s say you do pay your insurance in two payments each year to help bring your overall cost down. If that’s you, just take your six-month payment, divide it by six and put in a monthly item.

The final category is debt. This is any type of debt that you might have, except for your mortgage because we’ve already accounted for that. Cars, boats, motorcycles, credit cards, student loans, medical bills, personal loans, you name it, if it’s a debt it goes here.

Finally, add each category up and it should come to a number that is close to your monthly income. If you have a monthly income that is higher than your total costs, congratulations. However, you aren’t finished yet. Go back and take the extra money and put it in charity or savings.

If you find yourself in the situation where you have too much month left at the end of your money, don’t panic. It’s possible that you will find an error, or you might have to make some adjustments.

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