March 9, 2015

How to Determine, Set, and Follow a Budget in 7 Easy Steps

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. A new budget needs to be set every year. Determining, setting, and following a budget actually sounds much scarier than it really is.

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 what works for me. A handy printable is included.


Step 1 Take a look at a few pay checks and figure out how much money you bring in each month after taxes, pre-tax deductions (like health care and flex spending), and 401k contributions. This lets you know the amount you can't go over for your budget.

Step 2 Figure out how much you want and/or need save each year, in case of emergencies, future goals (like buying a house), unplanned expenses, etc. This fund also helps determine what trips and fun activities are possible. Set a savings goal for the year. Divide this amount by 12 months and subtract that from the number in step 1. This is how much you have to spend monthly.

Step 3 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  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. A full list is at the bottom of this post.) Figure out a final number for your usual monthly expenses. It should be the absolute lowest you can go, with a bit of padding for incidentals. It's always better to have padding than to set yourself up to fail.

Budget for the holidays.
Step 4 Figure out your non-monthly expenses and their amounts. Vet bills, insurance payments, property tax, house repairs, car repairs and maintenance, new appliances, holiday and birthday meals and gifts, etc., are included here. 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. Divide the total by 12 and add it to your total from step 3. It shouldn't be above your number from step 2. If it is, you need to adjust your spending and/or saving. If it is under, you have more to spend or save.

Step 5 Once you have all the above info together and are confident that your categories, spending, and saving is mapped out well, start a spreadsheet budget tool. That is your tool to track each month's spending and saving so not only do you know where you stand month to month, next year you'll be able to make any needed budget adjustments. After all, what good is a budget if you don't make sure you're following it?


Your tool should look something like this. You can use this printable to help you with your own, or use it as a hard copy. Your exact categories will vary depending on your expenses.
Budget tool

If anything changes during the year, update the budgeted amount 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.

Track your spending each month.
Step 6 Throughout the month track what's being spent in each category. That way you'll know when you're in danger of going over in a category. You can cut back other places if possible to make up for it. Maybe you can put off or skip buying household items that aren't must have, tighten up on gas use, or skip treats). 

Step 7 At the end of the month, enter in the final amount you spent in each category in the tool. In the other--non-monthly category you won't have an amount each month for these. Just note the amount budgeted for the year and put in the amount(s) in the proper month as you spend it. As you aren't spending it every month, you should be putting extra in savings so you have it when you need it.

Add everything up then mark whether or not you broke even, went over, or saved extra. If you went over, that overage needs to come from somewhere else whether it be the next month's budget or savings. Savings should be a last resort. 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. Remember to plug in what you saved that month (your total spent minus your total income for the month) to track you progress with your savings goal.

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

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More money saving tips
For tips on how to save money, check out my previous posts:
Easy Money Saving Tips Parts 1, 3, and 4
Saving Money on Kid's Clothes
Easy Money Saving Tips Summer Edition
Easy Ways to Stretch Your Grocery Budget
Ways to Slash Your Grocery Spending


This post is featured in The Complete Guide for Stay-at-Home Moms: Resources for Living on One Income


Disclaimer: I am not a tax or financial expert or advisor in any capacity. This is simply how I do our budgeting and what has worked for us. For professional advice, contact an accountant, financial advisor, tax advisor, or other professional. Every situation is different. Your finances and experiences may vary.


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32 comments:

  1. That's actually pretty on target! My husband is a financial adviser/manager and we've followed many of the same steps in the past :)

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    1. That is so good to know! It really works great for us so I'm glad I didn't just come up with something odd. :)

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    2. Thank you for sharing. I always try to use any tips I can find.

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  2. This is a great chart and every easy to follow. I started doing something very similar to this at the first of the year and it is amazing how much money I am saving with just a few changes to my spending.

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  3. Great tips! We are working on a similar budget right now!

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  4. Easy to follow chart that anyone can implement. Thanks for sharing.

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  5. We really need to start budgeting, atm it's just there to spend and what ever is left is left. Great post, your making it look allot easier then some of the other topics on budgeting I've read! Thank you

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  6. Great tips! It is great to have a budget and even include long range planning and saving for kids college or family vacations!

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  7. Love this, and pinned it!
    I like your disclaimer… but can you help me with my taxes?! :)

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  8. We all need a budget to better handle our finances thanks for all the great tips!

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  9. Thanks for sharing these suggestions. Every year when I get our receipts together for taxes, I see how much money we spend eating out...I try to change that but sometimes it's just easier to drive through ;).

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  10. What a great resource! I love your organized step by step approach.

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  11. There's some fear about budgets, and your advice really helps people get past it.

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  12. What a great plan to get your finances in order. The printable will help a lot!

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  13. I am really not so good with budgets; I always run over :-(
    I will use your tips to get my finance in order.

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  14. This was a very very helpful post! I am a stickler to following a budget and a lot of the tips you stated I do follow. :)

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  15. This is really great! I love making budgets and makes everything some much more simple for my husband!

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  16. Great tips! Thanks for sharing!

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  17. I really need to sit down with my husband and come up with a plan for this! Thanks!

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  18. I follow a lot of this, but I am so terrible about budgeting for occasional expenses, like renewing license plates and stuff like that. I think it might be time to modify the budget again :)

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  19. I need to work on a budget. I do use Quicken though which helps me a lot.

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  20. Fantastic points. Budgeting is very important.

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  21. These are such great tips! Thank you for sharing them. Ever since we added a third child to our family things have been tighter financially and we could really use these tips.

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  22. I do most of it every month.My husband and I do our best to stay in budget as possible. Budgeting is tough job.

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  23. Wonderful tips! This printable chart looks like a great resource!

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  24. Great budgeting Tips! Some people just seem to over complicate it when explaining - but this is easy to follow thanks! Found via Monday Blog Hop on Brand New Mom

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  25. I have everything down to a penny... my worry is how to make more ;) Isn't everyone worried about that, though? I love your ideas and hope that more people learn to live within their means!

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  26. This is really helpful. We're getting our taxes done this week and will be setting a new budget afterwards. I'll reference this if I get stuck.

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  27. Very wise budgeting tips. The printable chart is very helpful to all parents out there. Thank you for sharing!

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  28. Awesome tips! I actually use some of them. It really helps me not to overspend. I'm going to try out all of your steps this year.

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  29. #4 is the hardest for me. This is our first month on a budget and I forgot to take that into account.

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  30. Really good practical steps -- thanks!
    :-)
    Traci

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Thanks for taking the time to leave a comment. As a busy mom, I'm not always able to respond to each one, though I read and appreciate them all.