Fall Budget Challenge Step 2: Create Your Budget

Posted on Flickr by  Tax Credits

Posted on Flickr by Tax Credits

One month ago we started the fall budget challenge! If you missed the first budgeting post, check it out! Hopefully, you have tried tracking your spending for the past month. If not, it is never too late to start! This week, I will show you how to create your budget for the next school year.

Before we begin with the budgeting, let’s spend some time learning from your hard work of tracking your spending. If you were able to track your spending for the last month, great job! If not, you can certainly use your bank and/or credit card statement as a start. Take a look, where does most of your spending go? Housing? Car? Groceries? Entertainment? Dining out? Are there any surprises in your spending? Is your spending going to the places that you want it to go to? Are you spending in accordance with your values? What spending habits do you have, both bad and good? One of my biggest surprises when I first started tracking my spending is how much of my money goes towards groceries and eating out. Check out this article “Confessions of a Foodie” from last summer for more information. Keep these discoveries in mind as you create your budget.

Now, how to create a budget:

1. Choose your system: You can choose to create and track your budget using a variety of different tools. You might want to use the same one that you used to track your spending, or switch to another one.

  • Worksheet: Some people still enjoy putting pen to paper, if that is you check out this worksheet.
  • Spreadsheet: Excel offers a variety of different worksheets. This site features a few good templates that you can use with Excel or Google Docs.
  • Envelope System: Create your budget then take out cash for all of your expenses and put cash in specific envelopes. You can only spend what is in the envelope. For more information check out this link.
  • Budgeting Software: There are a variety of different programs out there; one of the most popular is Quicken.
  • Online Site: Again, there are a variety of sites. I use Mint.com because it syncs with my bank account, categorizes my transactions and tracks my budgets all in one place. You might also check out these personal finance apps.

2. Create your budget: The goal of the budget is to make sure that you are both living within your means and spending in accordance with your values. Over the past few weeks you have tracked your spending. You will want to use this information to help you create your budget categories as well as decide on how much money to allot to each category. Begin by calculating your different streams of income such as student loans, scholarships, job income, gifts, etc and how much you have in each category for each month. Then, calculate your different expenses making sure to include both needs (bills, rent, tuition, groceries, gas, etc.) and wants (dining out, coffee shops, shopping, entertainment, etc.). You can create as many or as few categories as you like, it is just important that every specific spending item fits into a category.

Here are some questions to ask yourself as you begin outlining your budget:

  • Prepare for the Unexpected: Do you have an emergency fund to draw on if you lose your job or incur unexpected expenses (car repairs, medical bills, etc.)?
  • Plan for the Future: Do you have a savings account that you regularly contribute to? Even a small amount (such as $25) every month can add up. Are you investing in your retirement? Are you saving up for a large purchase (computer, car, house, etc.)? If you have student loans, could you pay off the interest now?
  • Save for Occasional Expenses: Do you have a way to pay for occasional expenses? Make sure that you take into account how you will pay for Christmas and birthday gifts, travel for the holidays and other occasional expenses so that they don’t end up breaking your budget.
  • Problem Areas: As you tracked your spending did you find any problem areas? If so, gently challenge yourself to be more frugal in those areas. Remember to start out slow, it takes a long time to change a bad habit.
  • Have Fun: Where is your discretionary spending? Many people when they are first budgeting forget to give themselves some room to have fun. While it is important to be frugal and align your spending with your values, it is important to have some space in your budget for the fun stuff such as dining out and entertainment.
  • Be Flexible: It can be difficult to precisely predict your spending, especially if this is your first budget, so be flexible. If you have to switch some things around to better fit you, that’s fine!

Happy Budgeting!

Join the Conversation: What are your budgeting tips?

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Summer Budget Challenge: Create Your Budget

Throughout this summer we have been working together to track our spending, align our spending with our values and now create a budget. If you missed the first segment or the second segment of the Summer Budget Challenge definitely check those out. This week, I will show you how to create your budget for the next year.

1. Choose your system: You can choose to create and track your budget using a variety of different tools. You might want to use the one that you used to track your spending, or switch to another one.

  • Worksheet: Some people still enjoy putting pen to paper, if that is you check out this worksheet.
  • Spreadsheet: Excel offers a variety of different worksheets. This site features a few good templates that you can use with Excel or Google Docs.
  • Envelope System: Create your budget then take out cash for all of your expenses and put cash in specific envelopes. You can only spend what is in the envelope. For more information check out this link.
  • Budgeting Software: There are a variety of different programs out there; one of the most popular is Quicken.
  • Online Site: Again, there are a variety of sites. I use Mint.com because it syncs with my bank account, categorizes my transactions and tracks my budgets all in one place.

2. Create your budget: Over the past few weeks you have tracked your spending and aligned your spending with your values. You will want to use this information to help you create your budget categories as well as decide on how much money to allot to each category. Here are some questions to ask yourself as you begin outlining your budget:

  • Prepare for the Unexpected: Do you have an emergency fund to draw on if you lose your job or incur unexpected expenses (car repairs, medical bills, etc.)?
  • Plan for the Future: Do you have a savings account that you regularly contribute to? Even a small amount (such as $25) every month can add up. Are you investing in your retirement? Are you saving up for a large purchase (computer, car, house, etc.)? If you have student loans, could you pay off the interest now?
  • Save for Occasional Expenses: Do you have a way to pay for occasional expenses? Make sure that you take into account how you will pay for Christmas and Birthday gifts, travel for the holidays and other occasional expenses so that these expenses don’t break the bank.
  • Problem Areas: As you tracked your spending did you find any problem areas? If so, gently challenge yourself to be more frugal in those areas. Remember to start out slow, it takes a long time to change a bad habit.
  • Have Fun: Where is your discretionary spending? Many people when they are first budgeting forget to give themselves some room to have fun. While it is important to be frugal and align your spending with your values, it is important to have some space in your budget for the fun stuff.
  • Be Flexible: It can be difficult to precisely predict your spending, especially if this is your first budget, so be flexible. If you have to switch some things around to better fit you, that’s fine!

Happy Budgeting!

Join the Conversation: What are your budgeting tips?

Summer Budget Challenge: Step One Discover Your Habits

Summer is a great time to begin planning your budget for the next school year. This summer join me in the Summer Budget Challenge. Together we will discover our spending habits, align our spending with our values, and create a budget that we can maintain, all before the school year begins this fall. Follow frugal-community on Twitter and Facebook to hear more about what I have discovered and join the conversation.

We begin by discovering our spending habits. Over the next month, you have one task: track your income and your expenses. You may think your know where your money is going, be prepared to be surprised. Over the next few weeks track every dollar that comes in and every dollar that goes out. This includes everything from bills to paychecks to babysitting money to the dollar you used to get a diet coke from the vending machine. Every penny counts. There are a variety of ways that you can do this:

  • Journal Method: Carry around a small notebook or journal and track every purchase you make whether with cash, credit or check. On another page track your income.
  • Excel Method: Instead of using a journal, track all of your income and expenses in an excel spreadsheet. This works best if you set aside some time each week to put in each transaction, if you do it with any less frequency you might forget some of the smaller purchases. Microsoft provides a variety of personal budgeting templates.
  • Software Method: If Excel isn’t your thing, but you still want to track your spending on the computer there are a variety of different programs out there, one of the most popular is Quicken. This software will also be helpful later when we create a budget.
  • Online Method: There are a variety of sites that can help you track your income and expenses as well as create a budget. I use Mint.com because it syncs with my bank account, categorizes my transactions and tracks my budgets all in one place. Again, it is important that you set aside time each week to track your expenses on the site to make sure everything is categorized correctly and all of your cash purchases are included as well.

Happy Tracking!