Yeah, so this one should really come closer to the first few tips, but my brain is a little scattered lately. So, you’re getting it as Tip #5. Deal with it. But seriously, this one is a really solid tip if you want to pay off debt or put away cash to save up for something fun or important!
I wrote this post several years ago, before using You Need a Budget Changed Our Lives Forever. Keep reading. This is basically YNAB on paper. A budget is absolutely necessary to get efficient with your money. It’s not restricting, it’s freeing.
Setting up a budget is easy! I just re-did our budget last week, and it only took me about 15 minutes.
The first step in creating your budget is to figure out how much money comes in each month, and how much goes out.
Here’s what I do: We get paid twice a month. I got a piece of paper, and I wrote each check amount at the top of the page. Those are the first items in your two columns, one for each check. I love my trusty numerical keyboard/calculator. It connects to my computer via bluetooth! It makes crunching numbers a breeze!
I then looked at our must-have items each month, such as mortgage & utilities. I also come up with a round figure that I’m going to pay on the credit card for each check. That’s going to cover whatever I charge, like groceries or other general merchandise. If you aren’t good with credit cards, you should budget this as cash spending on Groceries. We’re good with credit cards, and we pay them off in full twice a month.
After that, came up with the exact amount of each known expense (if they don’t vary by month) or an average. For utilities like electric & water, I used a figure slightly higher than average, since those tend to go way up for us in the Summer down here in Texas. That way, I have a little extra cushion.
Make sure you line up what gets paid with what check under the correct check’s column. For example, our cable & alarm bills come out of the first check of the month, but the electric & water bills come out of the second check. On our budget, they pretty much even out each check, but that may not be the case for you.
Those are the first part of the budget. Those things never change, or if they do, they change slightly, and you know you’re going to have them every month.
From there, I subtract those bills from that check, and come up with two numbers, one in each column. If the numbers are similar, or off by $100 or less, use the smaller number. I like to round down to the nearest $50 or $100. This is a very important number: This amount is what you have left over to spend or save. This is the amount that you will use to pay for other things that you need and a few things that you want. This is not ALL fun money, ok? It’s for Needs!
Once you have your number, use it in BOTH columns. If one of your checks is slightly higher than another, that’s good. You can use that buffer for extra savings later.
In between where your next set of columns will be, list all of the items that you NEED to save for. These could be things like taxes, medical bills, vacation, emergency, whatever. I’m OCD, and I like to have a separate account for each of these items. I don’t like to have one big account and try to manage what I’m saving or spending for all of these things. It’s just too much. In order to separate everything, I use FREE Online Savings Accounts at Capital One 360. They allow you to have up to 25 different savings accounts! It’s really nice! Plus, they earn WAY more interest than I get at my local bank. That’s just FREE money that my savings is earning to help my balances grow!
Now, back to these need items. Come up with an estimate of what you need at the end of the year for each item. Start with the things that you absolutely have to have. Figure out what you need for each of these Have to Have Items for the year. If you don’t have an Emergency Fund, or your fund is too small, it goes here. Then, I divide that amount for each item by 24, because that’s how many checks we get in one year. Whatever that number is, that’s what I want to put away from each check for each item. That comes out of that leftover number. Make sense?
I do that for what I call the NEED Needs: Taxes & Insurance, Medical Bills & HOA Dues. Then I take a look at what’s leftover (these are Wants) and what I need/want to save for each category, and I come up with a figure that will fit in the remaining balance. For me, I set aside $50 a check for gifts (for random birthdays, but this snowballs for Christmas too), $100 for House Projects, and the rest I equally divide so I have the same number for each. We have a pretty healthy Emergency Fund, so I only put $50 a check additional into it to provide us more security.
Did you stay within that After-Need figure? Congratulations! You just made a budget!
Now, how do you stick to it? Remember the Capital One Savings Accounts I was telling you about? You can set up Automatic Withdrawls from your Checking Account to each savings account so that you don’t have to remember to manually save the money! I set mine up so that the 3 NEED Needs amounts are transferred the day after our checks are deposited, and the rest of the Needs are transferred after I’ve paid the bills from the beginning of the budget. It’s no-fuss, and I know I’ll have what I need to have by the end of the year. Plus, I earn a little extra money on that money each month! I love it!
I keep track of all of this by using a simple Google Doc that I set up, which is basically my Checking Account Register. I have 2 columns for my Checking Account Balance & Checking Account Transactions (it’s all formulas, so I only input the transactions), and then I have a column for each Savings Account. I use formulas in the Savings Account columns each time there’s a transfer from my checking account. On the first of the month, I have an entry in each Savings Account column adding in the interest. I love the first of the month! That’s FREE Money Day!
I manually do a lot of the formulas, so it’s not something that I can automatically replicate, but I’ve included a link to a Google Doc with the basic framework if you want to try it for yourself. You’ll have to change the formulas in the Checking Account Balance Column when you have a deposit but switching the – to a + sign, and you’ll need to manually do the Savings Account formulas. It’s a simple = cell+cell formula.
So that’s it! That’s how I save money with a budget. Everyone does budgets a bit different, and I’m a little over the top with my spreadsheet, but I really love it! It allows me to forecast out the rest of the year and beyond, so I have an idea of when we can go on vacation or remodel a bathroom.
I use this budget, along with the other one in my Budget Binder, to keep track of our expenses and where we are spending money. This budget is a forecast, or a before we spend the money budget. The budget binder is a before and after, where I record what we actually spent where so I know where to adjust.
Creating a budget is crucial to saving money, and that’s why it should be higher on the How I Save Money Tip List, but alas, it’s #5.
If this feels too complicated, simplify it by signing up for You Need A Budget. Here’s 7 Tips to Set Your YNAB Budget Up For Success to get you started on the right foot.
Check out all of my easy, actionable money-saving tips in my post 15 Easy Ways to Save Money!
What do you think? Is this a way to come up with a budget that could work for you and your family? How do you set up your budget? Tell us in the comments & let me know if you have any questions!