The Budget Breakdown

from daveramsey.com on 30 Jul 2012
 

Let’s get right to it. Here is a good breakdown of how to make a budget from the income and outgo sides.

You must make a new budget for each month. Every time that calendar flips, there are new birthdays, holidays, insurance bills, proms and so on. There is no one budget that is perfect all the time every time. So make a new budget for a new month.

The Income Side

On one side of the page, list all your income sources for the month. That includes:

  • Paychecks
  • Income from a small business
  • Side jobs
  • Freelance work
  • Residual income
  • Child support

There may be other nooks and crannies that we didn’t cover, but the overlying rule is this: If you receive money during the month, write it in your income category.

If you are married, do not separate your incomes. His and hers are now ours. It doesn’t matter if one of you nets $1,000 a month and the other brings home $10,000. You are now an $11,000 household.

The Outgo Side

Every expense you have each month gets written down. Rent, food, cable, phones and everything in between. Again, since you make a new spending plan each month, some months you’ll have expenses and others you won’t. A gift budget might be high in December and low in April, or there might be car insurance due. Focus on one month at a time.

Clear all the confusion. If you are confused about how to categorize expenses (does a restaurant visit count as “food” or “eating out”?), simply determine what system works best for you. When you have two categories that are obviously different (such as gas money and entertainment), you should separate them. But when you spend $100 at the grocery store buying food and things to run your household such as shampoo and paper towels, you might put that all under “grocery.”

Start Early

Make your budget a couple of days before the month begins. That gives you the feeling of control, of being ahead of the game. People get dejected if it’s August 7 and they have not yet made August’s budget, so aim to have that done by July 29. Don’t let the month sneak up on you without being prepared.

When you make a purchase, write it down that day. Take 60 seconds when you get home from work to update the checkbook or budget. A quick way to get discouraged is to open a wallet or purse and find a week’s worth of receipts in there. Be vigilant and do this small amount of work every day.

All Signs Point to Zero

The point of a budget is to make income and outgo equal zero. They cancel each other out. If you cover all your expenses during the month and have $500 left over, you aren’t done with the budget yet. You must tell that 500 bucks where to go. If you don’t, you lose the chance to make it work for you in the areas of getting out of debt, saving for an emergency, investing, paying off the house, or growing wealth. Tell every dollar where to go.

If you think this makes budget-making easy, check out the Gazelle Budget software on My Total Money Makeover. Sign up for a Free Trial today and get started on making your money behave!

What are your tips for making and sticking to a monthly budget? Leave a comment below.

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