This post is reader-inspired.
She wrote, “Would like to see a post to help with me with my American dream…on how to establish a monthly budget, and keep to it, in a way that is practical but not restrictive? seriously, i don’t know a SINGLE person who actually budgets/tracks well.”
Here’s all about budget from MY perspective/experience; you may have entirely different definitions/ ideas about budget.
Definition: A budget is a concrete, specific blueprint to achieve my financial goals.
Maintenance of Budget: Frequency in updating budget can be quarterly, but I often make as needed quick adjustments when I update my debts and assets excel sheet.
Steps to construct a budget:
- start with income/expenditure diary (this is much like food journal for diet)
- use an excel sheet to write down all your expenses, divide them in to major budgetary items.
- at the end of the month of tracking your in’s and out’s, sum up all numbers under each categories.
Principles when making a budget:
- be realistic and boarerline generous with each budgetary item. this is so that you set yourself up for success. It feels very good and positive when your expenditure come UNDER your budget, ie, you found yourself with extra cash at the end of the month to redistribute.
- budget is an orgnic and constantly evolving thing like invesment portfolio.
- you are making budget, you have a say, and you get to prioritize, but you got to stick to it!
For instance it can look like this,
| gross income post tax & insurance | 3052 |
| electric, water, garbage, internet | -330 |
| gasoline | -40 |
| food | -400 |
| student loan paid off 3/16/15 | 0 |
| home insurance | -30 |
| car insurance | -137 |
| mortgage | -925 |
| property tax | -167 |
| home owners association | -18 |
| kid expenses (classes, childcare) | -520 |
| med insurance co pay | -30 |
| house maintenance | -50 |
| car maintenance | -15 |
| cc payment | -300 |
| disposable income | 90 |
Now, take your budget for a test drive!
- record all your expenses and income
- check in half way through the month and see how you are doing. do you still have enough funds in each category to go for the next 1/2 of the month? do you need to redistribute?
- at the end of the month. sum up all in’s and out’s in each categories.
Reflection/ action:
- how did you do? did you spend above or below the budget?
- if you find yourself with extra cash at the end of the month, celebrate a little!
- then you can tighten your budget a little more and put the extra cash into savings/ retirement accounts.
- if you spent above your budget, sit down and go over which categories you overspend. do these items bring you unparellal happiness and satisifaction? if so, you can allocate more funds to this category while cutting back in others.
- if you spend above your budget UNIVERSALLY, in nearly all categories. then it is either time to cut back across the board or get a side job!
Most importantly, bugets are not limits.
Budgets are a means to an end.
Keep in mind/sight what you are working for. what is your goal? a dream home, financial freedom, kids college fund, vacation, or retirement?
Questions for you, comment below!
- how do you make your budget?
- Housing costs most people the most; what is your #1 expense category? (it’d be fanstic if your #1 category is savings/retirement.)
- what do you do with the extra cash at the end of the month?
- what are some major changes in your budget as your priorities in life evolve?