How to Make a Budget

  1. Write down everything that you spend for 1 month.

Carry around a piece of paper with you every where you go.  When you spend money, write down how much money you spend.  Also, write down why you spent the money.  Here is an example of one person’s expenditures (how the person spends money) during the month of February:

February 1, 2015:

  • $77.51 – groceries from Food Lion
  • $800 – rent
  • $127.05 – electric bill for January
  • $36 – monthly bus pass
  • $40.64 – water bill for January
  • $50 – monthly cell phone bill
  • $30 – internet bill
  • $400 – health insurance for everyone in the family
  • $150 – pay my neighbor to babysit my children for 3 hours every day after school this week
  • $20 – washing the family’s clothes at the Laundromat

February 2, 2015

  • $7.83 – buying lunch at the Food Court during my lunch break at work

February 3, 2015

  • $2.53 – coffee at Star Bucks before work
  • $12.23 – buying lunch at the Food Court during my lunch break at work
  • $21.50 – pizza for the family (too tired to cook after working all day)

February 4, 2015

  • $4.78 – buying lunch at the Food Court during my lunch break at work

February 5, 2015

  • $6.25 – buying lunch at the Food Court during my lunch break at work

February 6, 2015

  • $8.41 – buying lunch at the Food Court during my lunch break at work

February 7, 2015

  • $9.78 – buying lunch at the Food Court during my lunch break at work

February 8, 2015

  • $150 – pay my neighbor to babysit my children for 3 hours every day after school this week
  • $98.29 – food from Food Lion and cleaning supplies
  • $20 – washing the family’s clothes at the Laundromat

February 9, 2015

  • $7.83 – buying lunch at the Food Court during my lunch break at work

February 10, 2015

  • $9.78 – buying lunch at the Food Court during my lunch break at work

February 11, 2015

  • $8.41 – buying lunch at the Food Court during my lunch break at work

February 12, 2015

  • $6.25 – buying lunch at the Food Court during my lunch break at work

February 13, 2015

  • $2.53 – coffee at Star Bucks before work
  • $8.57 – buying lunch at the Food Court during my lunch break at work

February 14, 2015

  • $4.78 – buying lunch at the Food Court during my lunch break at work
  • $32.53 – I took my wife out to a nice restaurant for Valentine’s Day.

February 15, 2015

  • $150 – pay my neighbor to babysit my children for 3 hours every day after school this week
  • $68.15 – food from Food Lion
  • $20 – washing the family’s clothes at the Laundromat

February 16, 2015

  • $7.77 – buying lunch at the Food Court during my lunch break at work

February 17, 2015

  • $7.83 – buying lunch at the Food Court during my lunch break at work

February 18, 2015

  • $9.78 – buying lunch at the Food Court during my lunch break at work

February 19, 2015

  • $12.50 – take the family out to a movie at the Blue Ridge 14 Theater

February 20, 2015

  • $5.15 – buying lunch at the Food Court during my lunch break at work

February 21, 2015

  • $9.15 – buying lunch at the Food Court during my lunch break at work

February 22, 2015

  • $150 – pay my neighbor to babysit my children for 3 hours every day after school this week
  • $135.45 – food from Food Lion
  • $20 – washing the family’s clothes at the Laundromat
  • $5 – money for my child to take a field trip at school

February 23, 2015

  • $11.23 – buying lunch at the Food Court during my lunch break at work

February 24, 2015

  • $12.45 – buying lunch at the Food Court during my lunch break at work

February 25, 2015

  • $3.58 – buying lunch at the Food Court during my lunch break at work

February 26, 2015

  • $9.57 – buying lunch at the Food Court during my lunch break at work

February 27, 2015

  • $6.57 – buying lunch at the Food Court during my lunch break at work
  • $25.39 – pizza for the family (too tired to cook tonight)

February 28, 2015

  • $7.15 – buying lunch at the Food Court during my lunch break at work

Before you continue reading, read this person’s list of expenditures again.  Write down a list of ideas for how this person can spend less money next month.  Do you make any of the same spending mistakes that this person makes?

  1. Beside each expenditure, write “need” or “want” and a general category, such as “food”, “healthcare”, or “transportation”. Add up the total amount of money spent under each category.  Then, add up the total amount of money spent for things you “need” and for things you “want”.  Make a chart of your expenditures.  Here the chart of expenditures for this example family:

Expenditures for the Month of February

 
Total Expenditures
Need
Want
Food
$649.01
$379.40 (buying groceries and cooking at home)
$269.61 (eating at restaurants)
Education
$5.00
 
$5.00 (field trip)
Transportation
$36
$36 (Can I find a job that is in walking distance of my apartment?)
 
Childcare
$600
$600 (Maybe friends will babysit my children for free, if I babysit their children for free…)
 
Healthcare
$400
$400 (Maybe I should look for one full time job that gives free health insurance, instead of 2 part-time jobs.)
 
Electricity/Water/Laundry
$247.69
$167.69 (Can we spend less on water and electricity?)
$80.00 (Would it be less expensive to rent a washer and dryer?)
 
Rent
$800
$800 (Can we find a less expensive apartment?)
 
Clothing
$0
 
(Not every month will be this cheap.)
Entertainment
$12.50
 
$12.50 (Going to a museum is free.)
Cell Phone/Internet
$80
 
$80 (Can we find a less expensive cell phone and internet plan?)
Total Expenditures
$2,830.20
$2,463.09
$367.11

Now, we know how much this person spent during the month of February.  Does this mean that we know how much this person will spend next month?

No.  There are many expenditures that this person will make every 6 months or once a year, such as clothing or doctor’s appointments for everyone in the family.  Before we can predict how much this person will spend on average each month, we must repeat this exercise at least 6 times.

Do we have enough information to make life style changes that can help this person save a lot of money?

Yes.  Now we know how much money is spent on things that we “need” and things that we “want”.

Do we need to stop spending money on all things that we “want”?

No.  The list of things that we want help us to decide what is important and what is not important.  For example, the child’s field trip is not necessary for survival, so it is listed under “want”, but it is very important for his or her education.  We will probably make a mental note to prepare for expenditures like this in the future, without making a decision to stop paying for field trips.

However, the “want” list helps us to identify expenditures that we do not want to make.  It also gives us ideas for how to avoid these expenditures.  This person spent $269.61 on eating at restaurants during one month.  Most of that money could have been saved by bringing a lunch to work that was prepared at home.

There are also ways to spend less money on the things that we “need”.  Write your ideas next to each expenditure.

  1. Make one small change each month and continue writing down everything that you spend. Make a new expenditure chart each month.
  2. After six months, use all of your charts to create an average budget to help you to plan for future expenditures. Below is an example of this person’s average spending over the next 6 months.  This is their budget.

Budget

 
Total Expenditures for 1 Month
Need
Want
Total Expenditures for 1 year
Food
$550.00
$400.00
$150.00
$6,600.00
(Need: $4800.00, Want: $1800.00)
Education
$10.00
 
$10.00
$120.00
Transportation
$36
$36
 
$432.00
Childcare
$700
$700
 
$8,400.00
Healthcare
$400
$400
 
$4,800.00
Electricity/Water/Laundry
$250.00
$250.00
 
$3,000.00
Rent
$800
$800
 
9,600.00
Clothing
$50
 
$50
$600.00
Entertainment
$20
 
$20
$240.00
Cell Phone/Internet
$80
 
$80
$960.00
Total Expenditures
$2896.00
$2,586.00
$310
$34,752
(Need: 31,032.00
Want: $3,720.00)

This family needs to earn at least $34,752 after taxes to pay all of these bills.

Assignment 1: Imagine that this family earns only $25,000 a year.  Make a list of things that this family can do to save money.  Make a new budget, so that this family can survive on less money.

Assignment 2: Make a budget for yourself using all of the steps above.  Then, make a list of things that you can do to save money.  Change one thing each month, and write down how much money you save.

Assignment 3: Make a list of general ideas for how to save money.  Type your answers in the form of a comment.

Leave a Reply

Your email address will not be published. Required fields are marked *