June 14, 2014

How M Determines, Sets, and Follows a Budget

This article has been updated. Check it out for newer, more in-depth info and a handy printable.

Family accountant is one of the many jobs I have. This means doing the taxes each year, paying the bills each month and --you guessed it-- figuring out and setting our budget. It actually sounds much scarier than it really is.

Going from an office job to freelance writing and
editing meant new challenges professionally.
And meant it was time for a new budget.
I started from scratch for our new budget last year after I left my office job to be a freelance writer, editor, and proofreader and a stay-at-home mom. There are different ways to budget and some people do things differently. It's a trial-and-error to see what works best for you. Here is a step-by-step on how I budget that is easy to follow. A handy printable is included.

Step one Follow your spending for a few months. How much is going to groceries? Household items? Cell phones? Electric? Student loans? Internet? Mortgage? Gas? Water and sewer? How much is spent over all? Once that is done, you can look at everything again to see where you can cut back. For tips, check out my Easy Money Saving Tips series. Part one, with links to the others, is here.

Step two Figure out the absolute lowest amount you can get away with spending each month based on the numbers in step one. The lowest amount includes everything you need monthly with a bit of cushion to cover the things that pop up here and there, like new clothes and shoes, fun activities, treats or doctor appointment copays. This is your monthly spending portion of the budget. 
Math and money
Step three Add up all the expenses that aren't monthly. Vet bills, insurance payments, property tax, house repairs, car repairs and maintenance, new appliances, holiday and birthday meals and gifts, etc., all fall into this category. I find it's better to estimate high and pad it a bit. I'd rather figure we need more here and have money left over than run short. Each month, try to work as much of these pop-up expenses into the monthly spending as you can. It doesn't always work, but that's what this budget section is for anyway. 

Budgeting for the holidays!
Step four Figure out how much you need to save each year, in case of emergencies or unplanned expenses. This fund also helps determine what trips and fun activities are possible. I try to budget and plan so that as much as possible comes out of the monthly spending. All the big ticket things we'll need for Baby2 comes from here. The main goal of this part of the budget is savings, after all!

Step five At tax time, once the W2s were in, figure out how much money you bring in each year after taxes, pre-tax deductions (like health care and flex spending), and 401k contributions. This lets you know if the other budgeting is on track or if it needs to be tweaked and tightened more.

Step six On you have all the above info together and are confident that your spending and saving is as mapped out and budgeted well, pull up good old Excel. Make a spreadsheet to track each month's spending so not only do you know where we stand, but next year you'll be able to make any needed adjustments. After all, what good is a budget if you don't make sure you're following it? 

You can plug in the monthly spending amount and break it down between each category of spending. Make slots to stick in the non-monthly expenses as they pop up so you can keep track of those as well (this is really helpful when the next year comes along to plan for the next budget). If anything changes, update that category. For us, I did that when our internet bill went up and water bill went down with a new washer. When food prices went up, I came up with some more ways to save in order to compensate for that. 

This isn't my real spreadsheet, it's just an example.
Step 7 Throughout the month keep an eye on what's being spent in each category and to what the electric, water and other bills come. That way, if you're in danger of going over, you can cut back other places if possible (such as putting off buying household things you don't need right now until next month, tightening up on gas use or skipping treats). 

Step 8 At the end of the month, enter in what was spent in each category in the Excel sheet, add it up, and mark whether or not you broke even, went over or saved. If you went over, that overage needs to come from somewhere else whether it be the next month's cushion, non-monthly, or savings. Some months we have slipped up. No one is perfect. It will happen. Having the budget and tracking it let you see that it's happening so you can address it before it gets too bad.

The next year,  take a look at the spreadsheet and see how the budget worked for the year. Take into account anything that you need to change for your new budget. Hopefully, you'll be right where you planned financially, if not better.
Happy budgeting!

Disclaimer: I am not a financial expert. This is simply how I do our budgeting and what has worked for us. For professional advice, contact an accountant.


  1. What a fab frugal post, thank you for linking to fabulously frugal

    1. I'm glad you enjoyed it! --M


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