How to Create a Budget – Part 1 of 4

Well folks here we go on How to Create a Budget – Part 1 of 4

Part 1 – Income and Fixed Expenses
Part 2 – Non-Fixed Expenses
Part 3 – Variable Expenses
Part 4 – The Spreadsheets, Mass Confusion and My Head’s Going to Explode

From my point of view, I keep a budget to keep track of what’s coming in and what’s going out. For a simple example, if you make $10.00 a month and spend $11.00 a month, you’re going to have budgeting problems. That’s why we budget.

Creating a budget and sticking to that budget is sometimes futile. The moment you make the perfect budget, something horrid happens:

1. There’s a gift to buy for someone in the family.
2. Your car needs brakes, etc.
3. Your spouse buys something new they can’t live without and doesn’t tell you about it for a month.
4. Your water heater breaks.
5. A big tree falls on your house.
6. You have a minor fender bender that’s your fault and your deductible is $500.00.
7. You win a free trip somewhere all expenses paid, but you end up spending your own money on the trip.
8. You buy two boxes of Hot Tamales Candy instead of one because they’re so darn chewy, delicious and…HOT!!
9. You spent $10.00 more on fireworks just so you can show-up your neighbor and think that all the kids in the neighborhood would think you’re cool.
10. Your hair looks horrible and you HAVE to get it fixed, etc., etc. Luckily, I’m 95% bald and don’t have to worry about this one. 🙂

So, if you’re so inclined, you can try and stick to a strict budget but I would bet to say that it will end up being more of a guide. Again, a budget has to answer the basic question of what’s coming and what’s going.

Ok, the first thing you want to do when creating a budget is sit down and list what income you have. For instance if you take home $1,000.00 and your spouse brings home $1,000.00, then that’s your income.

The second thing you want to do when creating a budget is sit down and list what fixed expenses you have to pay month-to-month. Yes, but what are expenses?

For instance, you have to pay the same amount of rent every month or a mortgage payment. You have the same amount of money you send to your online savings account and Roth IRA every month.

You want to pay the same amount of electricity and gas every month so you enroll in the budget-level payment plan for these utilities. That way you know exactly what they will be. You have the same car payment every month. You have the same Cable TV bill every month. You have the same student loan payment to make every month, etc., etc.

I recommend that you do this using spreadsheet software such as Microsoft Excel or the freely available OpenOffice.org office suite. Here’s a list of spreadsheets to confuse the hell out of you but a lot of them mean well. For this first part though, let’s fire up a blank spreadsheet and list what your income is and list your fixed expenses.

Next post we’ll go through the non-fixed and variable expenses that make everything feel like jelly. You know, like you can’t get a hold of it. 🙂

Here’s a super simple fictitious spreadsheet to start listing your income and expenses: