The first step in preparing a budget is getting organized. To create an accurate budget, you must list every bit of income and expenses. Figuring out the income is the easy part and takes mere minutes. Figuring out the expenses takes a little longer. It's easy to figure out how much your monthly bills are, but it's the other things that trip us up. How do you budget for groceries and clothes? The easiest way to do this is to start by figuring out how much you've spent in the past. Look over your credit card and checking account statements for the past year and figure out how much you spent on what things, like groceries, clothes, entertainment, car maintenance, giving, saving, etc. You may be shocked at the totals, but that's in the past, and we are only going to look forward from here!
1. list your income
2. list your monthly expenses
- giving - tithing
- saving - retirement, etc
- expected payments - monthly bills, utilities, house payments, usually fixed amounts
- variable payments - groceries, medical, clothes, gifts, hair appts, entertainment, and yearly things such as vehicle insurance, and car plates
- debt - credit cards, hospital bills, student loans, car payment etc.
3. decide who will be the CFO of the family and let that spouse decide what plan he or she will use
4. work TOGETHER to develop your spending plan
Now to allocate money to each category. Chances are if you are following this series, you are spending more than you are bringing in, so those totals you have from last year are going to have to be cut down. If you are living paycheck to paycheck, things will be tight until you can get some of your debt paid off. Also, if you are very tight due to debt, I recommend not worrying about savings and retirement until debt is paid down, then the amount you were paying on debt can go into retirement and savings.
Let me do a sample budget to get you started
Income per month $5443
Tithing - $544
(skip saving right now)
electric - $175
water - $25
phone - $71
House - $1000
life insurance - $106.88
cable and internet - $171
Debt (minimum payments)
car payment - $350
hospital bill - $380
credit card - $120
Variable expenses (yearly things, divide by 12)
car plates - $5.17
car insurance - $113.42
fire protection - $17.50
safe deposit box - $2.50
students loans - $250
right now we spend $3331.47 a month, leaving $2111.53 to divide among the following
Cleaning products and "beauty" supplies
To fill in these amounts, we need to figure out what we have spent in the past year, divide by 12 and see how close we can get to filling in these gaps. Chances are you will have gone over $2111.53. So you'll have to figure out a number that fits, and that you can live with, keeping in mind, it would be best to have some left over that you can add to the minimum payments for debt, and eventually have enough for savings and retirement. Here's what I came up with...
Groceries - $450
Medical/dental/vision - $380
Clothes - $100
Gifts - $50
Cleaning and "beauty" supplies - $100
Hair appointments - $75
Gas - $330
now leaving us with $626.53. Using the snowball effect mentioned in a previous post, I would put as much of that as possible on the debt with the smallest balance until it is paid off, then move it to the next one. You may not want to put the entire $626 on the debt for the first three months to be sure that the variable amounts you came up with are doable or if you need to put a little more in one category. I caution you though...do not look at the $626 and say, "look at all that...I could buy a few more clothes!" Remember our goal is to eliminate our debt, not spend more, needlessly.
Remember, communication between husband and wife is an extremely important part of developing an accurate picture of your household budget. Put everything out on the table, or it won't work. The monthly budget is like a written contract between you and you both must agree to stick to it no matter what.
Also note that I do not have any money allocated for movies, eating out, or vacations. If you did that, the $626 would be gone in a flash and again you wouldn't be moving on your debt at all. It may sound harsh for a while, but fixing a problem is rarely fun and games. Find out what things you can do for free in your town, for vacation be a tourist in your own town or one within a short driving distance, and if there is a special occasion where you really want to eat out, use part of the grocery budget keeping in mind you will need to scrimp for the rest of the month.
Trust me when I say that this is totally doable. Due to medial bills, a husband out of work, and using credit cards to get through that, we were once $22,000 in debt. We completely got rid of that in just under three years. It took self control, and only one mini vacation during that time, but it was so worth it. You will feel so good about yourself when you get to that point. You'll feel lighter and less stressed, I promise.
Now get to work on your own budget and see what you can do!!