Budgeting is one of those things we all know we should be doing, but the thought and process can often sound overwhelming. However, once you commit to your budget and keep it on track, you can finally start seeing where your money is going and how to be in control of it.
Start by tracking your spending. There are many resources out there. Whether it’s an Excel spreadsheet, Quicken, or a budgeting app, there is something for everyone. It will take some time in the beginning to get everything organized, but after a month or so it will go more quickly. You should download and categorize your bank transactions weekly. I suggest tracking your spending for one month prior to implementing a budget so you can get a sense of how much you are spending in different categories.
Next, create a budget. Use the information from tracking your spending to establish a budget. I recommend including spending money, or allowance, in the budget for every family member. Spending money is for entertainment (eating out, movies, etc.) and other ‘wants’ not in the household budget. Set a spending money payday each week, for instance each Monday, and withdraw the household spending money from your checking account once or twice per month (this avoids missed paydays when you’ve already got the cash in hand). No one has to keep track of where they are spending money, but when the cash is gone you’re done spending until your next spending money payday.
On a weekly basis, compare your spending totals to your budget. By doing this weekly you’ll know when to stop spending in a specific category. Since the entire family needs to be aware of where you stand with your budget, I recommend printing out a budget vs. actual comparison report. Keep this report somewhere everyone can easily reference it (e.g., a bathroom mirror or on your refrigerator). Once you get the hang of your budgeting process, you can expect to spend only one or two hours each week on your budget.
Review your budget on a monthly basis, taking into account any unusual expenses or additional income. The budget will change from month to month, so make adjustments as needed.
Get the entire family involved with the budget. This is a great way to teach your children about living within their means. You will be leading by example and the spending money will give them practice.
- Written by Juli Erhart-Graves, CERTIFIED FINANCIAL PLANNER™ practitioner.