New Year resolution: How to start a budget

 How to Start a Budget

As an accountant, I get asked this question a lot: How do I start a budget?  My answer: know your income and expenses! Obvious? Well not for everybody. You will be amazed how many people do not know how much they have in their bank account or how much is the phone bill? To start a budget and to be able to stick to it, you need to know all those details!

When you have a budget in place you will be able to track your spending and saving effectively every month.

How to start a budget: Know your revenue stream

It is important to understand how much money flows into your household every month by referring to pay slips for all the working members in your house.  Many banks offer budgeting services, expense tracking! Use those tools to build your budget! Since your expenses may differ from a month to another, it is better if you tracked the last 3 months to start!  Once you have the net incoming amount for the month, note it down. Some people prefer a notebook but I use an excel spread sheet that looks like this

Monthly net income Me Partner Total
Salary 100 100 200
Child support (If you have any) 100 100
Other revenue stream: rent, etc 100 100
Total 200 200 400

 

As you can see, I have 3 columns. One for me, one for my partner and a total. In our family, all the income is added to one pool, one bank account! It is a family matter!

How to start a budget: Know your expenses

Then comes the expenses. This can require extra work as sometimes it is hard to predict some expenses! Be sure to include mortgage, rent, insurance, utilities, monthly savings or any other amounts that you spend every month. Do not forget to add your monthly grocery as well as food expenses, which include take outs too. You can use your banking tool to know exactly how much you spend and which area! You can also track down all your receipts! I use my banking tool as I find it easier! I usually set aside 10% of our revenues as a monthly saving in a separate bank account!

Once you have covered your monthly fixed expenses, make a list of all the incidental expenses such as gifts, clothing, supplies as well as auto maintenance. Allocate how much amount you would spend on all of them and then subtract the entire incidental expenses from the leftover amount for the month. If you run out of cash during this process, you will have to take another look at your incidentals and reduce the amount allocated under each category or do away with one or two categories of incidental expenses in your list.

Even if I don’t have car maintenance or clothes to buy every month, I include them in my monthly budget! This money is set aside in a separate bank account so when I need it, I have the money already!

Monthly expenses Total
Rent/Mortgage 133
Insurance 10
Phone/internet/utilities 10
Food 133
Take Out 10
Baby Sitting services 10
Car repair/maintenance 10
Entertainement 15
Bank Fees 5
Miscellanous 24
Monthly saving 40
Total 400

 

This is how to start a budget! Next week, we will see how to stick to your budget!

Do you have a budget! Does it look like this? Did I miss something?

15 thoughts on “New Year resolution: How to start a budget”

  1. “Next week, we will see how to stick to that budget!”

    Is this out already? I’ve been checking back to read the next part of the series.

  2. We follow a strict budget and it’s made a huge difference in our life. We’re now debt free, aside from our mortgage, and we are working on paying that down quickly too. It’s a great feeling.

  3. I need a budget! I will bookmark and follow along. I like that you are doing it in steps… not too overwhelming. I agree too, that it is a family matter.

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