Some Practical Steps We Took Toward Budgeting: Part 1

Before Dani and I took Financial Peace University, I knew next to nothing about budgeting. Even what I thought I knew about budgeting was actually nothing because, let's face it, I was still broke.

If you're looking at starting a budget for the first time, or maybe refining the one you've got, here are some of the steps we went through to form the budget that we use today. Keep in mind that forming our budget took about six months of strategic planning, and trial and error. Point being: there's no "one size fits all" budget, so you need to take the following as little more than a guideline and then mold it to suit your financial needs.

1. We started by figuring out our monthly, after-tax income. Then we made the decision that, no matter what, we wouldn't spend more than we make. No matter what, we wouldn't dip into next month's income. This is actually a pretty essential decision to make. America is a "buy on credit" culture, but if you're ever going to be free of creditors and debt you've got to commit to spending only what you have.


2. Next we looked at our bills—electricity, mortgage, phone, etc. We totaled these up and subtracted it from our monthly income.


3. The next thing we looked at were the not-so-regular bills—or what we call "Rollover Expenses." Things like car registration, license renewal, and insurance, bills that don't necessarily come around every month, but they WILL come around. We figured up the total annual expense of each of these things and divided it by 12 so we knew exactly how much to set aside each month. The money for these expenses builds up, or "rolls," into an account dedicated to paying off these expenses.


4. Once our essential expenses were covered we looked at what income we had left and decided how much we wanted to allocate for things like entertainment, restaurants, and gifts. Christmas, birthdays, anniversaries—these are expenses that come up year after year, so we should be planning for them just as if they were a car payment. If, like us, you want to buy a Valentine's Day gift for your spouse this year, decide as a couple how much money you want to spend on gifts and then be intentional about setting aside a little bit every month to cover it.

But, above all, no matter how you form your budget, keep it simple. Dani and I try to keep our budget to one sheet of paper that we can go through in about 10 or 15 minutes once a week. Any longer than that and our patience begins to run thin—with the budget and each other!

Keep pinchin' :-)