“Beware of little expenses, a small leak will sink a great ship.”

– Benjamin Franklin

There are so many different ways to create a simple budget that the act alone can be overwhelming.  Envelopes – no envelopes, fun money – who needs to have fun, vacation – forget a vacation you’re on a budget.  The bottom line is this, what is your financial goal, and will the system be easy for you to follow?

A Little Back Story

My husband and I have used various forms of budgeting over the years, and they’ve worked.  We’d paid off the majority of our debt, lived comfortably, but our savings still wasn’t growing. 

One day my we were talking about the budget.  Yes, my husband and I talk about money. It’s crucial to budgeting success.  During this discussion we started asking questions that were important in our next phase of budgeting, saving.  Like, where was our money going?  But, neither of us could answer this simple question.  We should’ve, at least, been able to roll around in some $1 bills by now, but that wasn’t the case.  So, I started researching and spent a lot of time figuring out a system that would work for us. 

My Take on Credit Cards

We constantly use our credit cards, so envelopes with cash didn’t make sense to us. I mean, you are pretty much required to have a credit card these days, aren’t you? Going against many of the financial gurus, I believe you really do need one. 

That being said, I don’t believe you need them for emergencies, but for things like renting a car, reserving a hotel, or making online purchases.

From my own experience, credit cards are way more secure for any online transaction. Trust me. If someone steals your credit information, you DO NOT want that to be a debit card linked to your bank account.

But, you do have to make sure to use them responsibly.  Believe it or not, there are smart ways to use them, and in the end, the credit card company pays you to use their card.

What Finally Worked

We tried strict budgeting, too hard.  Who wants to work, work, work and have no fun?  It’s ok for short periods of time and works great for some people. It just wasn’t for us.  We always seemed to fall off the boat.  It was like being on a strict diet, and then once you cheat, it’s all over.  It’s twice as hard to get back on track.    

The truth is, what we needed to learn was how to do it in balance from the beginning.  All along, developing new healthy habits that will serve you now and in the future.  Do you know what finally worked for us?

Giving EVERY SINGLE DOLLAR a job.

Yep, it’s that simple.  Every dollar that goes into your bank has a purpose.  It gets allocated to a specific need and guess what else. YOU decide what those needs are.  

Ready to Create a Simple Budget?

So are you ready to create a simple budget, one you can actually stick with to take control of your finances and eliminate some stress?  

If so, let’s do this!  I’m so excited to help you learn how to create a simple budget.  

Let’s create a simple budget that still allows you to live your life. 

What you’ll need to create your simple budget

→ Pen & Paper

→ Calculator or your phone

→ Bank Statements 

→ Credit Card Statements

**When collecting your bank and credit card statements, shoot for 6-12 months’ worth.  This helps you catch all those sneaky expenses that don’t occur monthly.  When you’re on a tight budget, those annual memberships can really send you spinning when they come due.

Determine your net income

The first thing you need to determine is exactly how much money you have coming in.  

So, grab your pen, paper, calculator/phone and your bank statements.

Next, look over your bank statements and write down every deposit that you consider regular income. Now, add those all together.  This is your monthly net income, the amount of money actually going into the bank.

Before you can budget your money, you have to know how much you’re working with.

How to Average Irregular Income

If you’re not paid the same amount each pay period you’ll want to get an average.  This is best done by averaging as many months as possible to get an accurate amount. 

For example: If you’re using 6 months of income. 

• First, add all deposits together for the 6 months.  
• Next, calculate the average.  Take the total of all deposits and divide it by the number of deposits you’ve added together.  So if you added up 24 deposits it would be your total dollar amount of the deposits divided by 24.
• The amount you get is your average net income.  So even if you have higher or lower months on average this is what you bring home.

Know your expenses

Your expenses are all the ways you’re spending your money.

Some examples of expenses are:

• Bills – This includes your mortgage/rent, utilities (electric, water, gas), insurance, cell phones, internet, 
• Living Expenses – These fluctuate, so estimate here based on your statements you have—gas, food (grocery store and dining out), entertainment, etc.
• Medical – insurance, prescriptions, copays, glasses, medical equipment, etc. 
• Child Care – daycare, after-school programs, sitter for date night
• Loans & Credit Cards – car loan, personal loans, credit cards
• Memberships (gyms, discount stores, etc.)
• Extracurricular activities (dance classes, leagues, etc.)

List by Frequency

Next, make a list for each category by frequency (how often you pay it).  Really brainstorm here using your statements for reference. Remember to look for the infrequent expenses.

After you determine an expense, write down its frequency (how often you pay it) and the average amount it costs. 

Determine the monthly amount for all expenses

Next, you want to determine the amount needed monthly to cover all the quarterly, semi-annual, or annual expenses. 

For instance, your pest service is $99 quarterly. You would divide the $99 by the 3 months that are in a quarter. That makes your monthly expense $33.  When you account for these expenses monthly, you avoid getting hit with larger expenses the month it’s due. 

Don’t worry if you miss some.  It took me a year to get all mine accounted for. No thanks to all those pesky annual memberships we tend to forget about. 

Now, let’s determine your total expenses by adding them all together. This is how much you have going out each month.

Does it add up?

Next, you want to compare your net income and your expenses.  Do you have enough income to cover all your expenses?  If so, that’s awesome. You can skip to the next step. 

If not, you need to dive a little deeper and start trimming down your expenses. 

Cut back on expenses 

We know that we need to cover our basic needs. 

• shelter
• food
• water
• vehicle & gas (unless public transportation is an option)
• medical (insurance, prescriptions, etc.)

These expenses are ideal, and the money should be set aside for them.  Next, choose one of the following scenarios.

1. I still don’t have enough money.

If you’re still short, consider your medical and vehicle expenses.   Are there cheaper options available?

If not, the real issue isn’t budgeting. It’s a lack of funds. 

At this point, your options are looking at where you live and work.  Can you live somewhere else for less?  Can you make more money?   

If you have money left over, then you’re ready to move on to scenario 2. 

2. I have the money to cover these expenses.

Now, take a look at your remaining expenses. Is there anything you can immediately eliminate?

This will be tough, but your goal here is to get your expenses down to $100 less than your remaining income if you can.

Doing this will allow you wiggle room for unexpected expenses and allow you to start building an emergency fund.

Once you have this hashed out, put together a list of all the things you’ll need to cancel and get them cancelled.

  Make Sure Every Dollar Has A Job

Ideally, once you’ve determined your net income and written down your expenses, you want to allocate any remaining money. Every dollar needs a job.  Below, are the 2 areas I recommend starting with.

Emergency Fund

Determine an emergency fund goal and make a payment to it each month.

Fun Money

You need fun money. This is what my grandmother would call pocket money.  It’s your money to spend as you see fit. The amount depends on how much you have leftover and what your goals are.

Some other ideas for the remaining funds are:

• vacation
• specific items you want
• date nights
• birthday’s
• holidays
• charitable contributions
• savings

The more you can plan for the less room you have for surprise and mindless spending. I actually put a little bit of money towards each of these categories every month.  I look at birthday’s a couple months in advance and save a little towards Christmas every month.  

Track and Make Adjustments to Your Budget

Start a budget tracking sheet for each month.  Create a column for each of the following:

• Expenses
• Budgeted Amount
• Actual Spent

For expenses that you use more than once create a separate page with the expense and your budgeted amount at the top.  Then, log each time you spend in that category and keep a running total so you know where you are each time you spend.  

Track Your Spending

This is the final step and most important for a successful budget. 

You want to track every dollar that comes in and every dollar that goes out.  EVERY dollar.

Doing this helps determine if your amounts need to be adjusted in your budget.  It also makes you aware if you’re bleeding money. 

For me, it was frivolous spending.  I didn’t feel like I was spending much, but $10 here and $5 there adds up.  Did I need to cut my spending or adjust my budget amounts?

Adjust Your Budget

I chose to adjust both.  I increased my fun money and decreased some of my goals a bit.  $5/mo from each goal didn’t affect me as much as changing my spending habits completely.  I did have to start being more aware of my spending, but not so much that it ruined every shopping trip.  It just meant I had to be more mindful of what I was buying and why. 

Be Patient

It WILL take time to adjust to tracking your money. You’re not failing if you don’t get it immediately. It’s a new habit and takes time, don’t give up.   

I hope that after walking through the steps to create a simple budget, you’re more confident in the budgeting process. 

Remember, it will take some time to get used to tracking everything, but that’s what is critical to have a budget that works.  You have to know where your money is going, and you have to know what the job of each dollar is.  You can say all day long in your head that this check is to pay for the house/rent, but until you claim it, it’s just words.  That’s why the envelope system with cash worked so well for so many people.  They were claiming that money and setting it aside.  The same thing goes for this.  

If you found this information helpful, please leave a comment below and share it on social media.  I’d also love to hear about any budgeting victories, questions, or suggestions you might have.  You can leave those in the comments as well or shoot me an email.  

While your here  you might find some of my other posts helpful in reducing daily stress.  You’ll find ideas for planning your day or week, cleaning routines & decluttering your home.

Happy Budgeting!

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