Starting a budget

[amberbamber]

Ok I purchased the YNAB excel thingy and I've found it to work pretty well- here's the issue. I can't get a hang of the needing to budget thing. Can someone share with me how to "start" a budget? I'm totally at a loss here! I feel so dumb, and I know I'm not dumb, but it just seems like I'm missing something so simple! Please help!

[amberfocus]

I'm sure everyone has their own approach, but here's mine.

First, calculate your monthly gross, as well as your take-home income. For this, you'll need to know your income tax bracket. Your tax return from a previous year should be sufficient. You'll be using your take-home as the basis for the majority of your budgetting, but gross is relevant if you're deducting pre-tax income for your 401(k).

Next, figure out your monthly expenses based on past expenditure. I usually start with housing (rent/mortgage) and other "unavoidable" expenses (car payment, CC minimums if you're carrying a balance, student loans, etc.).

Then, calculate the more "variable" expenses, such as clothing, entertainment, and dining out. Utilities and groceries can also go in this category. While they're "unavoidable" in a sense, they are also "variable" in that they can be reduced if needed.

After totaling everything, see if you're in the red or black. If you're in the red, look for places where you can cut back. If you're in the black, you can cut back, but you can also see where you'd like the extra cash to go--savings, paying down debts, investments, etc..

Hope this helps.

best,
~mimi

[amberbamber]

Thank you Mimi...that is basically what I was looking at.

*sigh* after figuring this out...and not adding in anything extra I have 2.62 left from my DH's take home pay. *sigh* Hopefully very soon the CC's will be paid off. Another big long *sigh*

[disneysteve]

In order to have a workable budget, you need to know how much is coming in and where it is all going.

For one month, write down every penny you spend on absolutely everything from a stick of gum to your mortgage payment and everything in between. Then, sit down with that list and divide it into two columns: Wants and Needs. You need to get down to the nitty gritty here. Yes, the phone bill is a Need, but the caller ID, voice messaging and call waiting are Wants. Don't forget to add things that you don't pay for monthly, like insurance premiums, auto registration, club dues, magazine subscriptions, etc. For those things, take 1/12 of the amount and put that on the list.

Once you've done that, see where you stand. If your total spending exceeds your total take-home pay, the Wants list is where you need to look for cutbacks. If you spending doesn't exceed income, but doesn't leave anything for savings, again look at the Wants list.

Don't ignore that Needs list, though. Even things you've classified as needs may be open to revision. For example, maybe you could lower your auto insurance by changing companies or raising deductibles. Maybe you could switch to a lower cost long distance company. Maybe you can start using more grocery coupons or buying more store brands to lower your food costs.

The more detailed you get and the more closely you analyze your spending, the better your budget will be.

[amberbamber]

Thank you DisneySteve...I obviously have alot of work to do

While my kids are napping, I guess everyone know what I'll be doing

And please tell me is it experience, education, self-evualation that has made you this knowledgeable about finances?

[disneysteve]

Originally Posted by amberbamber

And please tell me is it experience, education, self-evualation that has made you this knowledgeable about finances?

Absolutely! Being raised by an accountant father didn't hurt either.

I spend a lot of time educating myself about finance. I read Money and Kiplingers each month and a few other publications. And I hang out at places like this to share and gather information. It is definitely a learning process.

[creditcardfree]

Originally Posted by disneysteve

Don't forget to add things that you don't pay for monthly, like insurance premiums, auto registration, club dues, magazine subscriptions, etc. For those things, take 1/12 of the amount and put that on the list.

I think this is some of the most important advice on budgeting. It is really important to have a plan for the items that are paid only a few times a year. I personally set up my own escrow account for my life insurance, aaa membership, auto insurance, and auto registrations and trash service. Each month I transfer $127 to my savings account for these expenses. As they come due I move the money back out of the savings back to checking so I can write a check or have it withdrawn automatically.

I transfer the $127 automatically too. It's just one other payment that needs to be made. It's one I don't mind making either...because I'm being responsible and thinking ahead. That makes me happy.

[disneysteve]

And don't forget intermittent but predictable expenses. Your car needs an oil change every few months. And most likely it needs the occasional repair. Tires need to be replaced every 40,000 miles or so.

You need to see a doctor now and then, or fill a prescription, or go to the dentist.

Your kids will have the standard school fundraisers throughout the year.

So many things that people call "emergencies" are really things that should have been expected and prepared for.

[creditcardfree]

Originally Posted by disneysteve

And don't forget intermittent but predictable expenses. Your car needs an oil change every few months. And most likely it needs the occasional repair. Tires need to be replaced every 40,000 miles or so.

You need to see a doctor now and then, or fill a prescription, or go to the dentist.

Your kids will have the standard school fundraisers throughout the year.

So many things that people call "emergencies" are really things that should have been expected and prepared for.

I'm not as good with planning for these things myself. I really could do better. The school fundraisers seem to throw me off every year. We seem to have an extra cushion in our savings for these extras I don't plan for. I think this comes from putting any extra money I find in the savings account. This includes rebates, coupon savings, coins cashed in, gift money,husbands overtime pay and any other found money.

[Ima saver]

Yes, I have always budgetted $100 a week to pay for my 4 car insurances, my house insurance, my property taxes and my car tag. $5000 just about covers that.
I also put away $100 for medical each week because we have no insurance. If I don't need it, it builds up in my savings under the sub category of medical.
Be sure to pay your self something first each payday and put it in your savings. I try and do 10% but sometimes you must start with just $5. What every is it, put it away every pay day. Pay yourself first!