How to Build a Budget

The dreaded “B” word

“Either tell your money what to do, or end up wondering where it went.”

Dave Ramsey

I used to hate budgeting. Not that it seemed like too much work…just something about that damn “B” word used to cause me to groan and not want to do it. Maybe there was some stigma attached to the “I’m on a budget” mentality. It made me feel poor, cash-strapped, and destitute. The truth is, I can’t live without a budget now. I’m not poor. I’m not cash-strapped or destitute. I’m in control. Every month I fill out my budget and my money gets to work.

I started budgeting in December 2017. I was doing a good job of putting every spare cent towards my debt. The bills got paid first, then everything left went to credit cards or student loan. When December 1 hit, I knew I had to set some aside for Christmas presents, but I wasn’t sure how much I’d have. I knew I DID NOT want to use credit cards for gifts (and undo all the payoff work I had spent the past six months accomplishing) so I made a budget. I determined all the “had to pays” like bills, gym memberships, and minimum student loan and car payment. From there I determined what I could spend on gifts and then what extra I could pay on credit cards (I was not going to let up on my momentum).

The next thing I knew, I had done my first budget.

I used that formula for the next month, then the next, and all of 2018. I still use it. It became more intricate. I put in formulas. I began to estimate what I thought my paychecks would bring in and budgeted accordingly; I was always conservative on my income estimates so I didn’t actually over budget. And you know what happened? I ALWAYS had money left over each month.

So let’s walk through it. For the columns, I have “Expenses”, “Budget”, “Actual”, “Percent Met”, and “Notes.” The first column is self explanatory. “Budget” and “Actual” are my estimated amount and actual amount I end up paying or can afford. For some of the expenses, like “LA Fitness” and “Hulu”, those are the set amounts every month which I just pay (LA Fitness is on there twice because I pay for my wife’s membership). That’s why the Budget and Actual amounts always match. “Percent Met” is just math porn for me: I like to know how far over or short I am on my estimate. For example, my savings this month I was able to pay extra to so I was way over 100% to my estimate. Lastly, notes are for personal comments or reminders. The $100 to my emergency fund was replenishment (I keep $1,000 in an immediate emergency fund for when shit breaks…not sure what I had to use it on back then but the $100 was to make up the shortage).

The second group of rows starts with “Current Bank.” Current bank is what I’m starting the month with. Because pay days didn’t always fall on the 1st of the month, I had carry over money from the previous month. This row shows what I’m starting with. The next two rows are pay days with my estimated pay and actual pay (I was wage plus commission, so it was impossible to predict my actual paycheck). The fourth row is money made from freelance work. I also have a row reminding me to pay myself 10% — I’m a huge fan of this ‘rule’, where I immediately put 10% of my income into savings. This line had a formula to determine immediately what 10% of my income that month was. “Remainder at end of month” showed me what I had left over, so I knew this was money I could either spend, save, or invest. I also tracked retirement contributions, and how much of my expenses were mandatory (i.e., gym memberships, hulu, stuff I couldn’t miss payments on or were on autopay) and optional (putting money aside for a movie project or E-Trade).

You may have noticed that some of the big bills were missing: mortgage and car. How about utilities? Food? Gas? For those bills, my wife and I split them. We have a joint bank account for paying those bills. Long ago we determined the monthly cost of our mortgage, car payment, utilities, and estimated food and gas costs. We each contribute the same amount from each of our paychecks into the joint account, which then pays those bills. This ensures 1) we don’t mix all our money and end up arguing over personal purchases and 2) all those bills get paid first. This is why my income looks so low on the spreadsheet — I’ve already deducted the amount that goes into the joint account. The rest are my personal bills.

Regardless of how you do it, those bills still need to be paid! So if you’re making your own budget, please make sure you include them on your month budget. I guarantee if you make a budget, you will find money. Maybe you’re overspending somewhere. Maybe you can cut an expense out or save somewhere. When I was trying to determine my wife and I’s monthly expenses for the joint account, I tracked every purchase for a month: grocery bills, gas for the car, weekly take out meal…I kept all the receipts and determined what we spent on average per month.

Budgeting is about being in control. You’re in control of you money, which helps you be in control of your life. It doesn’t have to be a rigid lifestyle either. Budgeting doesn’t mean not doing anything fun or enjoying yourself. Every month I allocate $100 to blow on whatever I want. It can be more if there’s leftover money in the budget. Or, I can save it away for a future larger purchase or trip. It’s not a monastic lifestyle. I don’t wear ratty clothes and have an empty house devoid of furniture and appliances. If you’re going to Quit Your Job, you must be in control of your finances!

If you’re interested in learning more about building a budget or getting control of your finances, check out these books below:

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