30 Days to a Better Man Day 16: Create a Budget

by Brett & Kate McKay on June 15, 2009 · 12 comments

in 30 Days to a Better Man

With the economy in the tank, it’s more important than ever to tighten our belts and get our finances under control. The most effective tool to do this is the lowly budget. I’ve had an on again, off again thing with budgets. But when I’ve used them, my financial situation always improved. Of course, what ends up happening is that I get lazy, stop making time to review my budget, and fall back into just sort of winging it with my finances. While I don’t start spending like a high roller, I’ve noticed that when I’m not following a  budget, my financial situation stagnates and doesn’t improve. And as men, especially as men taking this 30 Day challenge, we’re all about continual improvement. So today we’ll be creating a budget. Let’s go.

The Benefits of Having a Budget

Puts you in control. A man is always in control. He’s in charge. But when you don’t have a budget, your money controls you, instead of the other way around. You want to be the man with a plan, not the man floating along with his head in the clouds.

Reduces stress. If you don’t keep a budget, you’re inevitably going to run into a situation where you don’t have a clue about how much money you have in your account, and you’ll end up incurring some sort of overdraft charge. Not knowing how much money you have at your disposal can create a lot of unneeded stress. You don’t know if you’re check is going to bounce; you don’t know if you’re going to have enough money for the month’s rent; you don’t know how you’ll pay for an emergency if it arises. By having a budget, you can know exactly what’s going in and out and focus on more important things in your life.

Increases confidence. There’s something about knowing exactly where your money is going that increases your confidence. I think it has something to do with the feeling of control a budget gives you. Plus, having a budget can help you make decisions faster and more confidently. Instead of hemming and hawing over every single purchase you make, you can just look at your budget, see if you have money available for it, and make your decision.

How to Create a Budget

1) Assess your monthly income. Gather your pay stubs together and figure out exactly how much you’re bringing in each month. If you’re self-employed or do work on the side, make a close estimate of how much you earn a month. You need to know how much money you have to work with before you start budgeting it out.

2) List your fixed expenses.
Fixed expenses are those that stay about the same each month. There’s usually not much you can do to change the amount you pay on fixed expenses. Fixed expenses can include things like rent or mortgage payments, car insurance, car payments, and health insurance.

3) Subtract your total fixed expenses from your total monthly income. The amount that’s left over is what you can work with for your variable expenses. If your fixed expenses are more than your total monthly income, you’re in trouble. You may need to downgrade to a smaller house or perhaps sell your car and get an old beater so that you have money left over for things like food, gas, and savings.

4) Set a spending goal for variable expenses. Now that you know how much money you have to work with, you can start budgeting for your variable expenses. Variable expenses are those that fluctuate from month-to-month. You have a degree of control over variable expenses. These are the areas where you can cut back the most and start getting ahead in your finances. Variable expenses include items like groceries, gasoline, eating out, and entertainment. Set a reasonable spending goal for each variable expense.

The two most important variable expenses, and the ones that you should budget for before you budget any others, are a retirement and emergency fund. Let’s face it, when it comes to retirement, we can no longer depend on our jobs or the government to fund it. So it’s up to us to do it. Set aside a small amount each month that you can put into a Roth IRA or your 401K.

In addition to saving for retirement, budget some money each month for an emergency fund. This money is to be used only in, well, emergencies, like unexpected unemployment or car repairs. Even if you can only sock away $25 a month in the beginning, it’s better than nothing. Most financial experts agree that you should save enough for three to six months of living expenses. If you’re looking for a good place to stash your emergency fund, check out ING Direct. It’s an online bank and they have decent interest rates. It’s what I use.

In addition to a retirement account and an emergency fund, you may also want to budget for what I call a “freedom account.” I put a monthly sum into the account to pay for expenses that come up regularly during the year. This includes a yearly vacation, oil changes, weddings gifts, Christmas presents, dentist and doctor appointments, etc.

4) Subtract your total expenses (fixed and variable) from your monthly income. The goal is for your expenses to be less than your income. If they’re not, you’ll need to tweak it some so that they are. This may mean cutting back or cutting out things like going out to eat or cable television. If you have any surplus, put it into your emergency fund or towards your retirement.

5) Keep track of spending. After you’ve created the budget for the month, keep track of every single penny you spend to ensure that you stay within your budget. Keeping track of your spending will also come in handy when you make next month’s budget. You’ll be able to review how much you spent the previous month and adjust your budget accordingly. One of the best ways I’ve found to keep track of your expenses is Mint.com. You can connect your bank account to Mint, and each week you’ll get a report telling you how much you’ve spent on groceries, gasoline, etc. It can be very helpful and eye-opening to see your expenses broken down into a color pie chart; you may be surprised about what portion of your money is going to things like eating out.

One of the best old-school methods of keeping track of your budget is to put the money you budgeted for certain things like groceries into envelopes. You only use the money in the envelope when making purchases for that thing. When the money runs out, you’re done spending in that category for the month.

6) Review your budget every month.
Each month, go over last month’s budget to see how you did. You’ll be able to see where you did well and where you can improve. After you review, repeat the whole process and make next month’s budget.

Tools For Budgeting

Below, we’ve created a short list of budgeting tools that you can use to help you get started with your budget. What’s nice about all of them is that they’re free!

Online

Free Budgeting Spreadsheets

Today’s task is to create a budget! If you already have a budget, then check it over, look for ways to increase how much you’re saving and putting towards retirement, and check out some of the resources above to help you keep track of your expenses.

Let us know how you keep a budget on the Community page!

{ 12 comments… read them below or add one }

1 Luís Guilherme June 15, 2009 at 8:41 pm

I also recommend Gnucash (http://www.gnucash.org/ ) which has an excellent portable version: ( http://gnucashportable.sourceforge.net/ ).

2 Brian June 15, 2009 at 9:34 pm

I’m a college student and this is how I budget a bi-monthly paycheck:

I use 3 envelopes and no credit cards.

Envelope 1: Fixed expenses – all fixed expenses (motorcycle insurance, life insurance, etc.)

Envelope 2: Savings – Currently 25% of whatever I make

Envelope 3: Fun Fund – Currently 15% of whatever I make, to be spent on anything “big” I want to buy (like a new motorcycle!)

The rest of the money (cash) is put in my wallet and that’s what I have to spend (or not spend) for the two weeks before my next paycheck. If I run out of cash in my wallet…I stop spending. Easy. =D

3 Certified debt management programs June 15, 2009 at 10:36 pm

With the twister of economic despair upsetting many people these days, becoming debt free is now the major center on many people’s mentality People are opening to appreciate if they want exist debt free they have to prepare, preparation, plus take achievement to get there. People facing bankruptcy will frequently check with a qualified bankruptcy attorney to help guide them throughout the procedure and make sure their container is resolved in an acceptable manner.

4 Tommy C June 16, 2009 at 2:52 am

I’m also a huge Mint fan. I’m bad about keeping a paper log for expenses, so Mint keeps me in check when I spend much more than I thought on some projects.

5 Jason Y June 16, 2009 at 3:51 am

More marriages end because of disagreements / stress / fights over _finances_ than for any other reason. It pays to work out a budget with your spouse, and stick to it!

Thanks for the suggestions on software to use. I used to wonder “Why not just create a spreadsheet for everything? That puts the USER in control!” Then I created a combination budget / ledger spreadsheet for my wife and I to use. Well, the problems we have encountered include:
-inability to dynamically or programmatically add a column, row, or worksheet to a workbook.
-slow sorting algorithms, requiring us to spread our data across multiple worksheets when one worksheet would otherwise work better
-I can’t figure out how to make filter / search / query filters work!
-You cannot control what users can and cannot change on a spreadsheet–They can overwrite formulas with data without even a warning message!

So we have an unwieldy beast. It actually works pretty well, but every time we have to add a spending category or something, we have to go through a 12-step ceremony to set it up, then double-check our formulas.

6 Nickoli June 16, 2009 at 8:40 am

@Jason Y:
You can use a feature called “protected cells” to prevent accidentally overwriting cells that you shouldn’t.

7 Marc D. June 16, 2009 at 6:56 pm

This is great since after I graduated High School I knew I needed to start a budget before I go to college.

8 Dustin June 17, 2009 at 2:31 am

Hey, don’t forget me! OK, I’m a new player on the budget scene. I’m just getting released. But if you are interested I would love it if you would check out http://inzolo.com and give me some feedback. It’s a web based envelope budgeting tool. Thanks!

9 Lane June 25, 2009 at 4:17 pm

I want to thank Brett and Kate for the Mint recomendation. I got an account immediately after reading this post. Thanks AoM.

10 Mike September 10, 2009 at 6:02 pm

I have a very simple budget where you only have to remember one number. You have to figure out what you can spend every day. I record it on the Tasks fuction in Gmail so I can get to it whenever I’m online.

I know what my take home pay is per month, and my monthly expenses. A simple subtraction leaves the amount of money left over per month. Then, divide by 31 days to determine your daily allowance. Round down to the nearest number to give yourself a bit of fudge room. I then collect every receipt and throw it away when I have taken it out of my budget. ATM visits come out instants, ignoring cash in hand. Once a month I remove all of my automatic deductions. Don’t forget that you’ll have many unexpected expenses that you have to calculate.

For example, you start at zero. On your first day you add your daily balance. Let’s say it’s $50. If throughout the first day you spend $20, you are now at $30, and your new number the next morning is $80. The next day you might have a $200 expense, so you would be negative, but at least you’d know it and spend less the next couple of days. It can be quite depressing to be below zero, but at least you know exactly where you stand every day.

11 Gandalf July 14, 2013 at 3:43 am

I’ve tried quite a few things, and YNAB is by far the best budgeting software I’ve ever come across. I’ve been using it for two years now. It actually makes you look ahead and be proactive in your budgeting and spending habits instead focusing on a lot of statistics and reports (though it has that too).

YNAB actually comes with a method (4 rules) which is incorporated very well into the software. I highly recommended YNAB to everyone, friends, family and strnagers.

12 King October 11, 2013 at 11:50 am

Wow! Tech has changed so much in last 4 years. I have used mint.com but anything not mobile is not 100%.

Do try Wally or other personal finance apps (yeah, you need a smart phone for this). It is perfect, you enter every expense you make in the mobile app, and voila it does the rest. Been using for last 3 months now, i know exactly where, when and for what I spent.

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