Do you need a Budget? Want a Budget? Here is how to!

Like you probably know, we have a budget. The thing about budgets is, that if you don’t make monthly follow-ups or track you expenses on a regular basis, it is not very helpful. You have to be hands on and updated at least once a month in order for the budget to be helpful and give you the proper framework for you.

Beginning of this month, I checked our balance in the bank and got a bit shocked – it was much lower than it was supposed to be. I panicked a bit and therefore it took me while to realize that no one stole our money; we simply spent way too much last month! So what happened? Things were going well and I stopped to pay attention!
To get myself back on track as well as to give you some pointers, here is what I concentrate on when making a budget.

Find out how much you are currently spending and earning

The first step is to find your monthly average of spending and earning by looking at your monthly expenses and incomes for (at least) 3 months passed. Take all your credit card summaries and bank statements a month at a time and summarize all expenses and incomes a month at a time.

I use these main categories to order my income and expenses:

Incomes:
Salary
Child allowance
Gifts and other income

Expenses:
Rent/ mortgage
Utilities (property taxes, electricity, water)
Communication (internet, phone, cell phones, cable TV, etc.)
Insurances
Car expenses and transportation
Clothing and Shoes
Childcare, school and after school activities
Cosmetics, hair salon and medicine
Leisure, restaurants and holiday
Other

The very best to go back a full year as some expenses are seasonal and only paid once a year.

How to use your average spending to build you Budget

From the previous exercise you should now have an overview of how your expenses look compared to your income. The right balance will be when your income is greater or equals your expenses. It should not be the other way around!

Go through the sums in each category and examine where you think that they look ok or where you should either cut or add money to suit your life and needs. We all have different priorities and those are important to have in mind when you set the sums for your budget. The sums in each category is up to you but bottom line is, that the total of the expenses cannot be bigger than the total of the income.

Remember to take into consideration, future and planned expenses as well as payments for savings, pensions and investments.

How to follow up and make alterations to your Budget

Whereas most expenses that are paid with credit card or a taken directly from your account are fairly easy to keep a track on, cash is so much harder to follow. We tend to draw sums from the ATM, but are not totally sure where they go in the end. For these kind of expenses I recommend use an excel sheet, notebook or an app for your phone to write down every time you pay something with cash. In that way, you will have documentation of all your expenses when the end of the month comes around and you have to sum up the month money wise.

Every months is different and it can be difficult to budget for it. You can have a fairly static budget that you use every month and keep in mind that some months will not totally add up. In Brian Forman’s blog Luke1428.com (recommendable, by the way) I read about another approach where you adjust your budget monthly according to what expenses will be present in the coming month. I like the idea and certainly try it.

Either way, I think it is good to go back and make changes often to your budget as it, like other things in life, nothing ever stays the same….

I hope you found this helpful. If you have further questions or need help set up your own budget, you can contact me here.